FX Trade Online – Best Practices

Forex trading existed even before we were born. Yes, trading been there for ages now but imagine a time when they had no calculators and no computers. Imagine, dealing with numbers with your paper and a pencil and wouldn’t that take ages to trade?

So glad we have computers, so glad we have internet and so glad that we now have FX trade online. Not just the brokers, we also have the real banks to trade with. We open the trading accounts online in just no time, we deposit via credit cards in just no time and we are there, ready to trade, FX trade online.

So how do you trade or take your first step towards trading?  First of all, you need some basic education that you find on multiple websites. There are some very good ones like Baby pips where you will find not just the good educational material but also good notes by experienced traders who actually make a living by FX trade online.

Your next step is to find a broker who will take your orders and maintain your account. Make sure you find a broker who is registered with the regulatory bodies of its country as internet is full of fake companies with all kinds of malpractices. A regulated broker is safe to trade with in terms of safety of your deposits and withdrawal.

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Now you have to start your career in FX trade online but you need to know that buying and selling currencies require decision making based on market analysis. You have two options here, first, to learn to analyze the market on your own. For this, your broker will facilitate you with charting application where you can apply your technical indicators and start trading on your own.  You may also decide to use fundamental indicators rather. The good news is that the brokers also send you regular updates on all major news happening around the world. What more can you ask for when you get all the news on your desktop, the moment it happens, all the time?

Your second option is to find a good and reputed signal provider who analyses the market and gives you the right trade recommendation. Even better is to find a few hubs like Zulu trade or collective2 where you can find all the major signal providers listed with their performance history on multiple parameters. You can decide who you want to go with and thereon, its simple. Subscribe to him and just follow his trades.

However, FX trade online has now taken a new dimension with the now available API configuration systems and Auto trading.  Under these, you can just connect your trading account to good trader that you may know or find on Zulu trade. Once you have connected to him, his real time trades are automatically mirrored onto your account also, hence keeping your trading hands free. This concept is called mirror trading and has the major advantage of keeping you free from analyzing the markets and making decisions on your own. This concept now is on the rise and you too should take advantage of this mechanism as this is easy money.

But remember before you start FX trade online; put only that money to the markets which you can afford to lose. Never ever trade with borrowed money as forex trading has a lot to do with Human Psychology and that takes a toll on your trading  decisions the moment you realize that the money on the line is borrowed, not yours. Always invest only your own money and only what you can afford to lose.

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What is Leverage in Forex Trading

Trading in Forex, as we all know, is done in heavy-lots with each lot-size amounting to $100 thousands on a standard and $10 thousands on a mini. These figures are big and scary and it’s a fact that not everyone has that kind of money to put into trading, even when you are very sure about your trading abilities. So, the question is that where do you get that much of money if a lot means as much as $100000? Is this the end of your trading career dream? Is Forex trading only for the big fish?

No my friend! It might scare you to see the lot sizes running in hundreds of thousands of dollars, that you probably don’t have with you but not to worry as you don’t need so much of money in your account to be able to trade. All you have to do is that you find your trade, just place an order and the broker will lend this money to you, at no condition at all. To further surprise you is the fact that whatever profits you make on his money is all for you to keep. Isn’t that cool? Let’s get into the details of this facility, it’s called LEVERAGE.

The Spot FX market runs on high-leverage which means that the broker makes the money available to its traders even up to one thousand times of what the trader has in his account though the most-commonly used leverage varies from 100:1 to 400:1. A leverage of 400:1 in your account would means that for every dollar that may have in your account, the broker will give you $399 to make it to a total of $400. Similarly, if the leverage used is 100:1, then for every $1 contribution of your, the broker with contribute $99 to make it a total of $100.

The broker lends you this money to trade these lots in lieu of certain deposit- money that he expects you to have in your account. In the spot FX markets, it is called the margin-money. $1 that we quoted in the above examples is called the Margin Money, you must have that much in your account and then the broker will take care of the rest.

The availability of this leverage makes it easy for small capital traders to trade in large-size lots using the brokers’ money when their own contribution in the pool is as low as just 0.25% or even 0.10% when the leverage used is 1000:1. The following calculations will make it further easier for you to understand leverage and calculate the Margin money required to trade a lot.

Example: Running at 400:1 leverage, if the lot size is $100000, then just divide the lot size with the leverage and you reach the money that you are required to have in your account to be able to take that lot, $100000/400= $250

This $250 is what you need to have in your account and the rest $99750 will be contributed by the broker to make it to a total of $100000 so that you can buy or sell the standard-lot that you want to trade. This $250 is called the “Margin-Money” and is kept as the security with the broker as long as your position is open.

In case you would want to take two lots, then you need to have $250*2=$500 in your account and then you can buy up-to two lots, i.e. $200000 worth of any currency you may like.
Example: Similarly, if you want to trade a Mini-lot with $10000 size, you need 10000/400= $25 in your account. Rest $975 will be all brokers’ contribution.

You can also change the leverage to any other figure of your choice and the margin-money required will change proportionately. If you change it to 100:1, then the margin-money becomes higher as you dropped your leverage from 400:1 to 100:1 but if you increase it to 1000:1, then the margin required will become lesser. Don’t panic with the calculations, it will all be on your fingertips in just a few days but for the time being, just remember that to trade Forex, you need nothing more than just a few dollars and a good mathematical ability. Just remember this simple formula, Lot size/Leverage= Margin money. Margin money is what you need in your account to be able to trade in Forex.

You might also feel scared with the thought that the broker can ask you for his money back in case you lose it with your wrong trades. This again is not a reason to worry because the broker has made enough arrangements to safeguard his own money and will not let you lose it even if you want to lose. The maximum loss that can come to your position is restricted to your own account balance i.e. the extra money besides the margin-Money, also called ‘Unused-margin’. The moment the loss goes beyond that, your position is automatically closed by the broker and the broker’s money goes back to him. Broker’s highly-sophisticated software has these inbuilt-arrangements to close your position as soon as your account balance is exhausted, so even if you want, your losses will never affect the broker’s money. All you lose and can lose is what you are willing to lose but only and only out of your own account, nothing more.

So now you know how Leverage can be a friend, how strong mathematical calculations before starting to trade can tilt your trading results in your favor and, how using high leverage on your sure-shot trades can multiply your profits manifold.

Before I conclude, I say that using high-leverage is always advantageous as with the growing leverage, the margin- money required to place your orders becomes significantly low. This means you can buy more lots with lesser money in your account when you are sure about profitability of your trades, all the more when you are a strict reversal-points trader.

However, as I said, good mathematical calculations are a must before deciding to use high leverage as even the slightest of negative movement on your trade can wipe out all your account balance in case of high-stake lots. Availability of leverage tends to use your greed to capture more profits by taking heavy lots. This backfires when the trade goes wrong in the times of sudden spikes or sharp volatility, hence leaving you no time to either hedge or to close your position. That means even a single bad trade can wipe out all your previous profits if you are running on high leverage and the position sizing is big. However, advantages are more and disadvantage less; provided you do your calculations right and not use high leverage in the time of disturbed markets.

These regulated brokers offer leverage of up-to 400:1:

www.easy-forex.com – Regulation ASIC, CFTC, CySEC

www.etoro.com – Regulation NFA, CySEC, ASIC, CFTC, MiFID, FCA

www.avatrade.com – Regulation Central Bank of Ireland, MiFID, ASiC, BVI

So, you can imagine how low an account balance you need to start your trading career

You can search Google for more brokers with higher leverage offers. However, I’ll suggest that you always check their regulatory status and registration details before choosing one. Traders from U.S. may not be able to avail much benefits of this feature without using an offshore broker if their law so permits, as the Forex regulatory authorities in U.S. have restricted the availability of leverage to retails traders to a maximum of 50:1 but U.k., Canada and Australia still continue to be good countries to find high-leverage brokers with due regulation, formal registration and positive customer feedbacks.