Forex Margin Trading – The Dangers Of Trading On The Margin

Why is gaining an excessive amount of leverage through forex margin trading a dangerous thing?

If you have already read about the idea of leverage in forex by trading on the margin, you’ll no doubt understand that it’s rather a powerful tool. A typical margined account will offer a 1% margin, therefore you simply deposit 1% of the total value of your trades (together with your broker lending you the other 99%).
Lets say your account deals in a large amount $100,000 each, so that you can buy a lot at this point you just need to invest $1000 of your own money in that trade (1%). Now this deal may seem like an amazing offer, and it does allow the ‘average joe’ to obtain a piece of the action without needing a couple of hundred thousand dollars to spare. However, there’s one big caveat you shouldn’t overlook:
Trading on a margin of 1% means a fall of 1% of your trade will put you out of the game!
Forex margin trading allows you to minimise your financial risk, however the flip side of the coin is that when the value of your trade dropped by the $1000 you put forward it could be automatically closed out by the broker. This is called a ‘margin call’.
As you can see, a little movement in the incorrect direction could easily wipe out your trade, and see your $1000 gone in a few seconds. If the trade moved enough in the proper direction to cover the spread then you could make a good profit, nevertheless, you would need to be sure in your prediction to create such a risky trade.
Forex margin trading on a 1% margin is risky business, but by getting the balance right between your level of risk and how heavily leveraged you account is you can gain an advantage. This advantage could be the difference between success and failure.
Important: Gaining AN EDGE in Forex Margin Trading is Vital to Your Sucess!
Learn more about forex currency trading strategies [] and margins, and know the pitfalls the brokers make an effort to hide!