Forex Market
Forex Margin and Leverage Trading
Since currencies are traded in lots (with a standard lot being 100,000 currency units), Forex is by definition a leveraged market. This means that to gain exposure on the forex market, you don’t have to come up with the total value of the position. You need only deposit a small percentage of it, known as the margin.
Finotec offers low margin requirements (as low as 0.5%, which corresponds to a 200:1 leverage). In other words, say you are using a 100:1 leverage, the initial margin deposit required for a $100,000 transaction will be $1,000.
Leverage is one of the main attractions of Forex because it allows traders to maximize the potential profit on a transaction. The forex market is much more leveraged than other markets such as stock markets or futures markets where daily price fluctuation can reach 5 percent-10%. The average daily price fluctuation of currencies rarely exceeds 1%. So in order to generate substantial profits on relatively small market movements, positions on the forex market require to be leveraged.
Forex brokers such as Finotec use this margin as collateral to cover the possible losses of their clients on a given transaction. If the market moves against you and your usable margin is not enough anymore to cover your exposure, you will be asked to add funds to your account (). If you fail to add funds, your position will be automatically closed to prevent any negative cash balance. Please remember that leverage is a double-edged sword: while it can lead to significant profit, it can also lead to equally significant losses and we therefore recommend that beginners start trading with low leverage.