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Forex Currency Trading Information
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What is Forex Currency Trading Leverage and PIPs?
PIP Price Movement
A pip unit is the measurement of a currency pair price movement. A pip is stated in the amount of $0.0001 for U.S.-dollar related currency pairs. A 100 pip move is equal to a one cent move when traded with U. S. Dollar pairs.
Forex Leverage
Leverage is the amount of money you are able to invest as a result of borrowing investment capital from your Forex currency broker. Basically, the more leverage you use, the more capital you have at risk in your position. Most Forex currency brokers in the United States offer 50 to 1 leverage. A $10,000 account enables you to trade $500,000 of currency.
Lot Trading Sizes
A standard Forex currency account has specific trading size lots. A "lot" is the minimum quantity of a currency pair that may be traded. Typically, one regular trading unit lot is worth $100,000, a mini trading unit lot is worth $10,000 and these are the most common lot sizes. Other "lot" sizes are available depending on which Forex currency trading broker you trade with.
A Forex Currency Trade Explanation
For example; standard lot size is $100,000, a one pip value is $10 (1 lot or $100,000 x 0.0001 or 1 PIP = $10.00). If your account contains $10,000 and you have a leverage of 50:1, then you will have $500,000 of available potential trading funds ($10,000 x 50 = $500,000) which equals 5 lots (5 lots x $100,000 = $500,000) that you can use for trading in the Forex currency market. It would be extremely risky to use the entire $500,000 that you have available for trading because each single PIP movement would be worth $50 when trading 5 lots which are worth $500,000. You could wipe out half your account just by losing 100 pips, a one cent move, (100 pips or .0100 x $500,000 or five lots = $5,000). Although there is large downside risk to having high leverage, there is also a large upside for potential gain - if you were to make 100 pips (one cent), your original account value of $10,000 would increase to $15,000, and you would rake in a 50% return in one hour, one day, one month or whatever the time frame the gain transpired over!"
New Maximum Leverage Rules/Laws
As received from Forex.com: "Effective Monday, October 18, 2010 a new CFTC regulation will go into effect that limits the maximum leverage in the retail Forex markets to 50:1. The new margin requirement is 2% (50:1 leverage) for the major currencies and 5% for all other currencies (20:1 leverage). Metals will be offered at 100:1".
When Trading Forex Currency Go With The Trend
Trade with the Forex FX Currency trend to maximize your chances to succeed. Trading against the trend won't kill a trader, but will definitely require more attention and your chance of losses will increase. In the end the trend will almost always be your friend.
Using a highly leveraged Forex currency account can come at a cost
Using a highly leveraged Forex FX trading account comes at a cost. It will, of course, give a trader more financial advantage to trade into more profits quickly, but for inexperienced traders high leverage, and, in fact, any Forex leverage can be disastrous. When a trader signs up for a high leverage without knowing how to properly use it to their own advantage, they simply sign up for additional risks.
Forex Currency Trading Help Tips, Tools, Rules
Forex Currency Market - What Is It & How It Works?
The Forex FX currency market is the largest market in the world.
The Forex market is a market in which participants from around the world are able to buy, sell, exchange and speculate on different currencies. International currency markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, retail forex brokers and investors.
The international Forex currency markets are large and liquid, therefore it is thought that they are extremely efficient. International Forex currency transactions do not occur on a single exchange, but in a global computer network of large banks and brokers from around the world.
The Forex FX currency market focuses on the trade of currencies by both large investment banks and individuals around the world. All trading is done over-the-counter, which adds to the market's liquidity, allowing trades to be made 24 hours a day. Trading can be done in nearly all currencies, however, a small group known as the majors is used in most trades. These currencies are the U.S. dollar, the euro, the British pound, the Japanese yen, the Swiss franc, the Canadian dollar and the Australian dollar. All currencies are quoted in currency pairs.
When a Forex currency trade is transacted in the Forex FX Currency Market, it has two sides someone is buying one currency in the pair, while another individual is selling the other currency. Although the positions traded in forex are often in excess of 100,000 currency units, only a fraction of the total position comes from the investor. The remainder is provided by a broker, which offers the leverage needed to make the trade.
Traders look to make a profit by betting that a currency's value will either appreciate or depreciate against another currency. For example, assume that you purchase US $100,000 by selling 80,000 euros. In this case, you are betting that the value of the dollar will increase against the euro. If your bet is correct and the value of the dollar increases, you will make a profit. In order to collect this profit, you will have to close your position. To do this, you must sell the US $100,000, in which case you will receive more than 80,000 euros in return.
Settling a Forex Trad; traders are not required to settle their positions on the delivery date, which usually arises two business days after the position is opened. Traders can roll over their positions to the next available delivery date. However, if a trader takes this route, they are left open to incurring a charge that can arise depending on his or her position and the difference between the interest rates on the two currencies in the traded currency pair.
Waht are Currency Interest Rates and the Currency Carry Trade
Why do Currency Interest Rates Matter for Forex Traders; currency interest rates are important to currency traders in the Forex market because the higher the rate of return over the opposing traded currency the more interest accrued on the currency invested in, and thus the additional profit from the currecny trade.
Using the interest rate currency risk as the main profit focus in a strategy can add profit while purchasing currencies with higher interest rates (funding them with currencies with lower interest rates), such a move does not always produce a profit if the currency value drops more than the earned interest. Interest rates should be considered carefully, as should any news release about interest rates from central banks.
Currency Interest Rates and Currency Carry Trade Example
A carry trade trader purchases a full size trading lot $100,000 USD/JPY at the start of the year on January 1st. That trade at that point consists of an equal value of US Dollar OWNED vs Japanese Yen OWED. Let's Assume that the US Dollar interest rate is 5.0%, and the interest rate for the Japanese Yen is 0.5%. The trader keeps the trade open for a year and when the trade is closed at the end of that calendar year on Dec 31, the value of the USD/JPY is unchanged (this is very unlikely that the price of the currency pair will be the same as when originally purchased but for this example it will simplify this explanation) and therefore there is neither profit nor loss on the actual trade until the carry currency interest is considered.
The currency carry trader earned interest on the US Dollar and paid interest on the Japanese Yen, and removed from the trader's trading account nightly due to what is called the daily rollover. At the end of the year, the Trader earned 5.0% on the United States Dollars owned, and had to pay just 0.5% on the Japanese Yen owed. Therefore, the net interest earned on the trade for the year was 4.5% and the trader would have earned $4,500 United States Dollars / USD in positive interest.
Currency Carry Trade Profit; if trading leverage on the trading account is 50:1 the amount of margin required for the trade would be $2,000 US Dollars ($100,000 divided by 50 equals $2,000)- and the return on that investment would be $4,500 on $2,000 investment which is a 225% gain.
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About This Forex Currency Trading News Website
Forex news from all over the world. We deliver the top Forex news related to foreign exchange market and global currency trends. Latest and breaking Forex and currency news including currency analysis and forecasts, live foreign exchange rates, central bank interest rates, and currency trading news.
This FOREX NEWS web page was specifically designed with most relevant Forex trading news on a single organized currency trading news web page. The Forex news web page is designed to help new Forex traders get a fresh clean quick start and assist existing currency traders.
Good Trading,
Anthony, TradeCurrencyNow.com
Website Disclosure Warning and Disclaimers
The information on this website is distributed in the hope that it will be useful for entertainment and amusement, but WITHOUT ANY WARRANTY; without even the implied warranty of MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. Both the author and the website provider assume no liability for damages arising from use of the news or information found on this website or linked websites. The content and statements on this web site in no way constitutes financial advice and no guarantees are made. Forex currency trading as almost all investments carries financial risks.
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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