Essentials in Forex
There are quite a few basic essentials which a trader should learn
well, when it comes to trading Forex. These are some of the tools
that the trader will need at various stages of Forex trading.
Evaluating Profit and Loss
If you are trading through an efficient online trading platform,
it is likely that you will be provided with an automated
calculation of your Profit and Loss vis-à-vis your open positions
in the Forex market. This facilitates the trader, making it easier
for him to keep track of his position and movement in the market
Nevertheless, it is still helpful for every Forex trader to know
and comprehend the calculation through which, these results are
Knowing all about Margins
Advantages are many, when it comes to getting good margins for
trading. Margin can be known as the minimum amount required to be
deposited before an investor starts trading. This can also be
known as the initial amount with which the Forex trading account
can be opened.
With bigger margins, you can get more buying power in your hands.
For example, if you have $5,000 worth money in your margin account
which also provides 100:1 leverage, then you can easily buy about
$500,000 of exchange.
This is for the reason that you only have to position 1% of the
buying price as security in your account. Thus, in other words,
you have a $500,000 worth of buying power in your hands.
This is exactly why trading exchange with a margin account
facilitates you to raise your buying power. Margin accounts can
also allow you to enhance your overall return on investment with
less capital pay out.
But what needs to be kept in mind always is that, while trading on
margins can increase your profits, there is an equal and opposite
possibility that it can amplify your losses as well.
Making use of a Margin account for Forex trading can definitely
turn out to be a profitable investment strategy, but only if you
manage your account wisely. Along with the profits, what also
should be considered seriously are the risks which are involved by
getting more buying power with lesser cash outlay, as this may
also lead you to lose more than you have at times too.
Also, always make sure that you thoroughly read the margin
agreement which occurs between your payment firm and you. Talk to
your account representative if you have any questions.
In the cases where the margin available in your account drops
below a preset boundary, there are 99% chances of your account
positions being partly or completely shut down.
Also, there is a possibility that you might not even get a margin
call before closing down your positions.
To avoid such a risky situation, it is always advisable that you
supervise your margin account stability regularly to keep a check
that your money does not stoop as low as the margin set.
Also, make appropriate use of correct stop-loss orders along with
every open position. Setting a stop-loss order will help you limit
your risks and fix a safe point for exiting the market.
Price chart patterns
There are a range of charts available, which can help you study
the Forex market patters and price actions. Although many types of
chart forms are used to represent the market movements, the Bar
charts are the most commonly used charts to describe the patters
simply and clearly.
In these Bar charts, each bar or slab usually signifies a period
of time ranging from a minute to a number of years. The
significance of these charts is that they show diverse price
patterns that have been established so far.
Some other types of price chart patterns are:
Point and figure patterns
The point that differentiates the Bar chart patterns from the
Point and figure patterns is that, the latter does not employ time
scales to specify a specific day or month related with a
particular price action.
Yet, they are basically the similar to the patterns created
through the Bar charts.
Candlestick patterns are also employed to forecast the market,
just like the Point and figure patterns and Bar charts patterns.
But Candlestick patterns are more visually appealing, detailed and
clearer than the other patterns, because of their tinted bodies.