Is it possible to reduce the risk?
You can limit your risk by using exchange rate, “Stop Loss”. Odds are determined by the investor. The investor chooses the lowest
rate for which it is able to agree.When the market reaches that price, the transaction is automatically closed, so the investor does
not lose more money.
Because the investor has determined the course, you can control your investment.Can be sure that will not lose more than he
wants.
In the same way an investor can set a Take Profit rate. The transaction will be automatically closed when the price reaches a level
determined by the investor. With Take-Profit can easily control their transactions without having to constantly monitor your position.
The investor can change the set rates at any time during the term of the contract.
However, note that 100% guarantee set rates is impossible, since market conditions may affect transactions in a sudden way. For
example, the market can change quickly, and enforcement of established courses may not be possible because the market has
ceased to be controlled.
What is margin?
Margin is the amount that an investor is involved in the Forex contract that opens (in the investment, which risks). Internet Brokers
must have confidence that the investor is able to cover the costs if they lose money as a result of the transaction. Investors in
money into an account that can be used to cover losses. This amount is called the “minimum security”.
Investors can invest in the market within the deposit and the first investment may immediately be large. Margin trading can increase
profits, but also increase the losses.
The rates of profits and losses during the use of leverage
As already mentioned, the payment is your investment. Therefore, the amount shall be paid $ 1000 for a contract of 100 000 $. This
is a ratio of 1:100. If the exchange rate changes, for example, about 0.5%, it is 50% difference in pay! Because the contract is 100
times greater than the deposit, the change of 0.5% is 100 times greater, or 50%.
Why leverage?
Financial leverage is the Forex market in order to create the opportunity to achieve higher returns. This is necessary because the
Forex market transactions involve very small changes in the courses. The difference may be only a small part of one cent.
With such small amounts would have to take a very long time to achieve a substantial profit and it would not be the first major
investment. Using leverage, the investor can quickly get a return on its investment than if using only your first deposit.Activities
in the Forex market run very fast. The investor should be cautious when using leverage. The higher the leverage, the greater the
chances of losing your investment if the currency pair in the opposite direction than anticipated by the investor.
You are advised not to risk more than they are willing to lose.
How does leverage?
Financial leverage is to determine the rates for each dollar in your account. The money that the investor has paid on your account
are the amount the investor actually risked. This is called the margin or the amount of risk. Easy-Forex offers a leverage of 1:50 to
1:200 (note: only for the U.S. to 1:100).
For example: If an investor invests $ 100 and will benefit from increasing the amount of leverage over 1:200, will have $ 200 for
every $ 1 (in the security deposit), which could be used for transactions. If an investor start trading with your $ 100 can buy the
currency for the amount of 20 000 $ (200 x 100).
Leverage in Forex trading
What is leverage in Forex trading?
The object of Forex trading is the contract rate. Because changes in exchange rates may be very low, investors use leverage to
increase your income.
Here’s a practical example, step by step:
The investor decides to open a transaction that includes the following elements:
The currency pair in the transaction – eg. EUR / USD
The direction of the transaction – BUY Euro and SELL U.S. dollars
Price – for example, 1.3500
The value of transactions – 100 000
The investor buys the contract (transaction), believing that will make a profit after the close (offset) of the transaction.
If the predictions of the investor to check (for example: the rate increased to 1.3600), the investor will profit: for every euro earned in
the contract of 1 U.S. cent. Total profit of $ 1000 (100 000 x 1 cent).
Do you then need ALL of EUR 100 000 to open the transaction?
The answer is NO. Investors can take advantage of leverage: the investor must take a chance, for example, only 1:100 of the
contract value. Thus, a contract for 100 000 requires only $ 1,000. However, if the transaction ended with a loss, the value of the
contract WHOLE dropped to 99 000, then the transaction is automatically closed, since the investor’s margin was only $ 1,000.
Please note that the leverage in the Forex market is usually from 1:50 to 1:200. With leverage, you have more money trading than
the funds in his account, because it can “lift” that which is – which means that what you have, use to increase the amount you can
spend on transactions and thus larger profit, if you succeed in trading in the right direction in the currency pair. On the other hand, if
the investor suffers a loss: the higher the leverage, the faster the transaction will be automatically closed.
Risk
While transactions in the Forex market can bring considerable profits, but there is also a risk: associated with foreign exchange
rates, interest rates and political risk.Approximately 80% of all transactions lasts for seven days or less, while 40% take less than
two days. Given the extremely short duration of a typical transaction, technical indicators heavily influence the decisions about
inputs, outputs, and placing the order.
Leverage
Financial leverage, ie the use of credit, such as a trade purchased on a margin, is often used in the Forex market. The loan /
leveraged in the margined account is collateralized by your initial deposit. As a result, the investor can operate up to USD 100 000
has only $ 1,000. A relatively small market movement will have a proportionately larger impact on payments made or yet to be paid
in the future. This may work in favor of or against the investor. You may sustain a loss of all funds deposited and any additional
funds deposited to maintain your positions.
Five ways to conclude the transaction by a private investor in the Forex market, directly or indirectly:
Market transactions “spot market”
Forwards and futures
Options
Contracts of exchange differences
Type of spread betting transactions
The transaction type of “spot market”
The transaction type of “spot market” is a simple exchange of one currency for another. Spot rate is equal to the current market
price, also called the reference price. Transactions spot (immediate) do not require immediate implementation or payment. Date
of application or date of “establishing the rate” is the next business day after the conclusion of the contract (transaction date), in
which the transaction is agreed to by the two investors. The two-day period provides time to confirm the agreement and arrange the
clearing and necessary debiting and crediting of bank accounts in various places in the world.
Margin – Amount to Risk
Banks and / or entities for transactions via the Internet require protection as proof that the investor is solvent. Such protection is
called “margin” or “minimum security” on the Forex markets. In practice, this is payment on account of the investor, which is to cover
possible losses arising from transactions in the future.
Margin enables private investors to trade in markets that have high minimum units of trading by allowing traders to hold a much
stronger position than their account value.Margin gains also increases, but tends to magnify the losses, not to mention the systemic
risk.
The exchange rate
Because currencies are traded in pairs and exchanged one against the other, the rate at which they are exchanged is called the
exchange rate. Most currencies are traded against the U.S. dollar (USD). The next four currencies, which most traded is the euro
(EUR), Japanese yen (JPY), British pound sterling (GBP) and Swiss Franc (CHF). These five currencies make up the majority of the
market and are called major currencies or the principal. Some sources also include the Australian dollar (AUD).
The first currency in the exchange pair is referred to as base currency and the second as the quote currency. Quote currency is
thus the numerator in the ratio, and the base currency is the denominator. The value of the base currency (denominator) is always
1 Therefore, the exchange rate tells how much quote currency must be paid to obtain one unit of base currency. The exchange
rate also determines how much the seller will receive a quote currency when selling one unit of base currency.For example, the
exchange rate EUR / USD of 1.2083 specifies that the buyer has to pay Euro 1.2083 USD per 1 euro.
At any time, anywhere, if an investor buys any currency and immediately sells it – and in the exchange rate of no change – the
investor loses money. The reason for this is that the purchase price, which determines how much an investor will receive the quote
currency when selling one unit of base currency is always lower than the selling price, which determines how much you should
pay in quote currency when buying one unit of base currency. For example, the odds of buy / sell EUR / USD in your bank may
be 1.2015 / 1.3015, which means “cradle” of 1000 pips (also called points, one pip = 0.0001). This is a very large value compared
to the bid / offer rates with which investors usually meet online Forex, eg 1.2015 / 1.2020, the “hook” amounting to only 5 pips. In
general, smaller spreads are better for Forex investors since even they require fork movement in exchange rates to achieve a profit.
Most investors in the Forex market, including Easy Forex ™, are the “spreads that are” contained in the exchange rates.
What is Forex Trading?
Market exchange rates (foreign exchange, Forex) market is functioning without interruption, in which national currencies are traded,
typically via brokers. Foreign currencies are constantly and simultaneously bought and sold on the domestic and international
markets, and the value of invested amounts grow or shrink depending on currency movements. Conditions in the foreign exchange
market can change at any time due to events in real time.
The main incentive to conduct foreign exchange transactions by private investors and short-term advantage of Forex trading is
the ability to conclude transactions 24 hours a day, 5 days a week, with unlimited access to the Forex market investors around the
world.
Additional advantages of the Forex market are:
The enormous liquid market facilitates trading in almost all currencies.
Volatility in market prices offering profit opportunities.
Standard Forex instruments for controlling the maximum risk.
Opportunity to earn both the up trend, and down trend.
Leverage at the required low self-deposit.
Many options for zero commission transactions.
Forex trading
The investor’s goal in Forex trading is to profit from foreign currency movements.Forex trading or currency trading is always done
in currency pairs. For example, the exchange rate of EUR / USD on 26 August 2003 was 1.0857. This number is also referred to as
a “Forex rate” or in short “course”. If an investor had bought 1000 euros on that day, would pay $ 1,085.70 U.S.. A year later, the
Forex rate was 1.2083, which means that the value of the euro (the numerator of the EUR / USD) rose against the U.S. dollar. The
investor could now sell the 1000 euros in order to receive 1208.30 dollars. Thus, the investor would gain U.S. $ 122.60 compared
with the previous year. However, to know whether the investor made a good investment, one needs to compare this investment
option to alternative investments. Return on investment (ROI) should be at least compared to the return on investment without
risk. One example of risk-free investment is long-term U.S. government bonds since there is practically no possibility of loss ie
bankruptcy of the U.S. government or the inability or the inability or refusal to pay debts. (But remember that past performance is not
indicative of future)
When trading on the foreign exchange investor should start the game only if you expect the currency you are buying to increase in
value against the currency you are selling. If the currency you are buying does increase in value, you must sell back the currency to
secure a profit. An open trade (also called open position) is a transaction in which a trader has bought or sold a particular currency
pair and has not yet sold or bought back the equivalent amount to close the position.
However, it is estimated that approximately 70% -90% of the FX market is speculative. In other words, if a person or institution that
bought or sold the currency has no plan to actually take the money at the end, but rather were speculating on the movement of the
currency.