简体中文
ภาษาไทย
繁體中文
Indonesia
Introduction to foreign exchange margin beginners: what is foreign exchange margin? How does a novice conduct foreign exchange margin trading?
2022-03-22
1791
1.What is foreign exchange margin?
Foreign exchange margin,also known as currency futures,leveraged foreign exchange.It mainly takes various currencies in the foreign exchange market as trading objects,allowing traders to carry out financial derivatives that expand dozens to hundreds of times of value-added transactions with a certain proportion of funds.
Archimedes once said:"Give me a fulcrum,and I can lift the earth",and the same is true of foreign exchange margin in layman's terms:
Pay a deposit,exchange big money
Use big money to do business
From small to big,four or two to make a fortune
A trader puts a certain amount of money in a trading account as a margin.After confirmation by the dealer,a credit multiple is granted to the trader,allowing him to invest with the transaction amount several times the margin.This is foreign exchange margin.
By this means,many investors with less capital can also participate in foreign exchange transactions.
Taking the 1%margin requirement as an example,it means that I only need to deposit 10,000 US dollars to conduct foreign exchange transactions of up to 1 million US dollars,and my profitability will naturally be greatly improved.
Because of this closeness to the people,foreign exchange margin has become one of the most popular derivatives in financial products.
A successful trade can allow traders to obtain several or even hundreds of times the return in a short period of time.But don't be too happy,if you lose,the loss will be multiplied.Before we trade,we must understand that risk and return are always associated with each other!
In addition to being able to reduce the threshold for traders with a small and broad,foreign exchange margin has the following characteristics:
1.All day coverage
If you have a globe around you,you might as well pick it up and see.Have you found that the three regions of Asia Pacific,Europe and North America are connected,which is basically a circle of the earth?
The same is true for foreign exchange.The three major financial markets of Asia Pacific,Europe and the United States are connected to form a 24-hour uninterrupted global trading market,providing traders with opportunities all the time.However,according to some important holidays in different countries,different regions will occasionally enter a one-or two-day closure,but overall it is still uninterrupted.
2.Convenient and fast
Foreign exchange margin trading adopts the transaction method of T+0.
T+0 means:buy on the same day and sell on the same day without waiting for the second trading day.This more responsive and speculative approach to closing seems to me to be more compatible with contemporary fast-paced life.
3.Risk controllable
In most transactions,the greater risk actually comes from the operator itself than the risk from the market.Because of the weakness of human nature,wrong judgments are often made because of emotions,and foreign exchange margin has a series of systems.Risks are highly controllable.
The trading system is equipped with stop-loss and take-profit tools,and traders can set risk orders in advance to avoid unnecessary losses caused by human weaknesses,such as fluke and greed.
4.Two-way profit
This is another very attractive way to play foreign exchange margin.
Many friends have a one-sided perception before investing,that is:profit can only be achieved by buying at a low price at a high price and then selling.This is true in some trading markets,but in Forex margin,you need to break the rules.
Traders can not only make profits by buying when the currency appreciates like stocks,but also by selling when the currency depreciates,and will not be unable to make money due to bear market restrictions.Regardless of whether it rises or falls,there is room for profit,and the bull and bear markets take all.
5.International standards
The value of currency will fluctuate constantly with the atmosphere of foreign exchange trading,and the trading atmosphere is easily affected by the exchange rate policies of various countries,political factors and other major events,so foreign exchange margin trading is a trading method that is closely aligned with international dynamics.
In the words of the butterfly effect,"A President in the White House of the United States,with an occasional tweet,may cause a tornado in the European foreign exchange market two seconds later."
This may sound a bit exaggerated,but because of this,the transparency of foreign exchange margin is higher,because news and data are public.Of course,if you are locked in a small dark room completely isolated from the outside world,then take it as if I didn't say it.
2.Why is foreign exchange margin trading so popular?
Forex margin trading originated in London in the 1980s.Since its development,it has become the mainstream foreign exchange trading tool in the world.Why has it become a mainstream forex trading tool?
The most attractive thing about foreign exchange margin trading is its"leverage effect"and"two-way trading advantage".The"leverage effect"amplifies the investment energy of investors,enabling investors with limited funds to engage in large-scale transactions;two-way operations allow investors to buy and make profits when the currency is rising(long positions),or when the currency is falling.Sell at a profit(go short)so you don't have to be limited by the so-called bear market where you can't make money.
Then,foreign exchange futures also have"leverage effect"and"two-way trading advantage",why is it not as sought after by investors as foreign exchange margin trading?
First of all,the liquidity of the foreign exchange margin trading market is high.The foreign exchange margin trading market belongs to the spot foreign exchange market.Its daily trading volume is as high as several trillion US dollars.It is the largest financial market with the highest capital liquidity in the world.The foreign exchange futures market is much smaller than that.
Secondly,foreign exchange margin trading can be done 24 hours a day,while the business hours of the foreign exchange futures market are limited.The foreign exchange market is a 24-hour non-stop market.On Sunday at 5:00 p.m.Eastern Time,foreign exchange trading starts in Sydney,Australia,and then opens in Tokyo,Japan at 7:00,followed by London,England,which starts at 2:00 in the morning.Finally,at 8:00 in the morning,New York,USA.For investors,no matter when and where any news occurs,investors can react immediately,and investors can also plan flexibly when entering or exiting the market.
3.How does margin trading in the foreign exchange market work?
Foreign exchange refers to the exchange between foreign currencies.Foreign exchange margin actually refers to the general term for foreign exchange transactions that take up the margin.The foreign exchange market is 46 times larger than the global futures market combined.Because of this,the foreign exchange market is the most liquid market in the world.In a nutshell,foreign exchange refers to foreign currencies or various means of payment expressed in foreign currencies for international settlement of claims and debts.
A foreign exchange margin trading platform,at its core,involves borrowing to increase the possible return on investment.Rather than using their own invested capital to control stocks,investors typically use margin accounts to take control of larger positions using the leverage of borrowed funds.
These margin accounts are operated by the investor's broker and are settled daily in cash.Margin accounts are not limited to stocks-they are also used by currency traders in the Forex market.
In the beginning,investors interested in trading in the forex market must first sign up with a regular broker or an online forex discount broker.Once an investor finds the right broker,a margin account must be set up.Forex margin accounts are very similar to stock margin accounts-investors take short-term loans from brokers.The loan is equal to the amount of leverage taken on by the investor.
Investors must first deposit funds into a margin account in order to trade.The amount that needs to be deposited depends on the margin percentage agreed between the investor and the broker.For example,an account will be traded in 100,000 or more currency units and the margin percentage is usually 1%or 2%.Usually,mt4 trading software is used when doing foreign exchange transactions,which makes the foreign exchange transaction process more convenient.
So,for an investor who wants to trade$100,000,a 1%margin means$1,000 needs to be deposited into the account.The remaining 99%is provided by brokers.This borrowed amount does not pay interest directly,but must be extended if the investor does not close out the position by the settlement date.In this case,interest may be charged based on the investor's position(long or short)and the short-term interest rate of the relevant currency.
4.How to start foreign exchange margin trading?
1.Select a foreign exchange broker and foreign currency pair
To make a profit in the foreign exchange market,you must first choose a foreign exchange dealer and foreign currency pairs with safe funds.For example,I like to trade currency pairs such as USD/JPY and USD/EUR.Because they are more concerned about the policies of central banks in the United States,Europe,and Japan!
2.Download the trading platform or use the web version to trade
Most foreign exchange dealers provide MT4 and MT5 trading platforms(including mobile APPs),and some large brokerages also provide their own platforms.Novices must first learn to use trading software,how to place orders,open positions,close positions,position and fund management,etc.,and can use a demo account to test.
3.Forex Trading Strategy
Newbies to foreign exchange investment want to make profits in the market,they must first have basic introductory knowledge such as foreign exchange fundamental analysis and technical analysis.There are many kinds of foreign exchange trading strategies,such as short-term intraday trading,swing trading,position trading,etc.Generally,long-term investment focuses on fundamental analysis,while short-term trading focuses on technical analysis.
5.Precautions for foreign exchange novice operating foreign exchange margin trading
The most important thing to pay attention to in foreign exchange margin trading is the foreign exchange margin risk!
1.Risks of foreign exchange transactions
The risk of foreign exchange margin trading is very high.Due to the leverage ratio,the original small fluctuations are magnified.It is possible to generate huge profits or losses in the short term.Generally speaking,it is more suitable for professional investors or hedge fund traders.According to statistics,68%of retail investor accounts lose money in foreign exchange margin and CFD transactions.
If there is a loss during the transaction and the margin exceeds a certain percentage,the dealer will issue a notice to the investor,requiring the investor to deposit funds to maintain the account assets above a certain percentage.For example,50%,when the margin is 1,000 US dollars,when the loss reaches only 500 US dollars,the dealer will issue a call to investors.If the loss is more,for example,only 30%of the margin is left,the dealer will force the liquidation.
This is also the reason why many investors believe that foreign exchange margin trading and CFDs are dangerous.Because novice investors are often not good at controlling the value of their positions.The way to avoid risk is to control the position within a reasonable range.
Reference:What is"Leverage"in Forex Trading?How to choose the right leverage ratio?
2.Risks of foreign exchange platforms
Many investors are worried that foreign exchange margin brokerages will run away or go bankrupt.In fact,they choose some large international brokerages with a long history,strict supervision and scale,which can generally ensure the safety of funds.
6.Summary of foreign exchange margin trading experience
1.Choose the leverage ratio according to your own situation
The leverage system of foreign exchange margin allows investors to leverage a large amount of funds with a small amount of funds,and at the same time amplify profits and losses,so the most important risk control skill here is to select a leverage ratio that suits your own situation.
2.Don't be impatient and control the proportion of positions
The standard leverage ratio of foreign mainstream foreign exchange brokers is generally set to 100:1.Assuming that the account is full,when the value of the market currency is in the opposite direction of the investor's operation and the fluctuation reaches 1%,it will cause all margin losses and liquidation.Therefore,we recommend that investors do not operate with full positions,and according to their appetite for risk,appropriately control the position ratio,control the real leverage ratio within an acceptable range,and try to win as high profits as possible while controlling risks first.
3.Calm down and operate calmly
In addition to the skills in trading operations,foreign exchange speculation also needs to avoid all psychological misunderstandings,view the market correctly,and avoid luck.It is also recommended that investors use their spare funds to invest to avoid investment losses that affect family livelihoods.When the foreign exchange market fluctuates greatly in a trading day,you should hold your breath and avoid changing the rational investment decision that you have made because of the current price fluctuations.
Not sure about trading?Then you can practice trading with a free demo account first.Create your demo account,learn on the best platform and enter your trading journey.
The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.
CM Trade
As a world leading financial trading platform, CMtrade Provides comprehensive one-stop trading services and opportunities for traders.
[Products]
The platform provides over 32 kinds of popular financial products such as forex, precious metals, crude oil, indices, cryptocurrencies and more.
[System]
2 top trading systems CM Trade MT4 / CM Trade APP, powerful and easy to operate
[Service]
Comprehensive market news, professional market analysis, 7*24 hours online customer service
[Advantage]
Low cost, high leverage, flexible one-stop all day two-way trading.
[Authority]
Licensed and strictly regulated by authorities. Traders deposits are independently kept by the bank. Fast deposit and withdrawal. Fair, efficient and transparent trading environment.
Follow us to learn more
Free AccessDaily Trading Strategy
Download Now
CM Trade Mobile Application
Economics Calendar
MoreYou May Also Like
