FOREX MARGIN- The basics !

The major reason why online forex trading is very lucrative is  because of forex margin.The concept of margin in itself is not something new, but has been used in other markets such as the stock and futures exchange markets. Forex Margin is the amount of money required by a forex broker from a trader to open a trade in the foreign exchange market

Trading on margin is like taking a short term loan from your forex broker. Before you can start trading on margin you’ll have to set up a forex trading account with a forex broker, and deposit money in this account. Generally, for margin trading of 1% the broker will ask you to deposit only $1000 in your account. Basically, you are providing just 1% of your trading capital, the remaining 99% is provided by your forex broker.

You now have the possibility to buy up to $ 100,000 worth of currencies with only $ 1,000 or put  technically you have leveraged your account by 100 times. There  is also trading on margin in stock and futures trading, but you get a much higher leverage in the foreign exchange market because of the special nature of currencies.

If your account is denominated in USD the margin required per transaction is calculated in USD. For example, retail forex brokers always quote currency pair such as GBP/USD (i.e. GBP in terms of USD). If the GBP/USD is trading at 1.4500, that is one Pound is worth 1.4500 US Dollars, and you want to buy 10,000 Pounds or 10 K, you would sell 14,500 USD to get those 10,000 Pounds. Basically your margin required will be 1% of $14,500 which equals $145.00.

Sadly a large majority of retail traders lose in the forex market because they don’t understand these basic concepts. If you want to build a successful online forex trading business, make sure you learn more about forex margin and leverage.