The major currency pairs in the Forex market consist of the U.S. dollar (USD), the Japanese yen (JPY), the Euro (EUR), the Swiss franc (CHF) and the Australian dollar (AUD). These are the most commonly traded currencies in the Forex market and allow traders to make a profit or loss when trading the market. There are several types of deposits and margin requirements for traders to be able to place trades. These include:
The minimum transaction size is one euro and therefore a transaction size of one euro represents the same number of units as the current exchange rate between the two base currency. To take advantage of the small moment change in value, traders must trade large amounts of either the base currency or the derivative currency. For example, a trader may buy EUR/CHF in the U.S. and EUR/ AUD in the UK.
A’leveraged’ deposit is when a trader has deposited more than the market price into their account. As their deposit increases their profit potential increases. On the other hand, a ‘non-leveraged’ deposit is when a trader has not put any cash on the line. The reason for this is that there is no potential gain or loss as the trader does not stand to lose anything should the market value decrease. As such, this type of deposit does not require a high investment to start with.
Non-leveraged traders wishing to create a higher profit margin can do so by selling either Swiss Francs or Australian dollars. The Swiss Franc is the most widely traded currency and many investors like to sell Swiss Francs when the market is strong. When this occurs, traders will typically sell all of their Australian dollars to create a one dollar deposit to open new accounts. The benefit to this is that they get to purchase the foreign currency at a lower price and as such earn more profit when the market is weak.
Another way a trader may increase their profit margin is by purchasing more than one foreign currency. They may purchase 100,000 Swiss Francs and have an account opened in the Swiss Bank Account. Then when the market is weak they can sell the remaining 100,000 Swiss Francs for a profit. However, before doing this they need to ensure that they have at least a one percent margin. If their margin is reduced then they will not be able to make these sales.
Before making any trades, whether they be leveraged or not, it is important to ensure that the trader has a fixed deposit and a set trade size. This is because if they trade with leverage they will be risking more money than they have in their account. A fixed deposit is simply the amount of money that the investor can put in their account before they have to take out a loan against the balance in the account. Once the loan is paid off, then the trader has their original deposit plus whatever profit they have earned above their deposit.
To determine the maximum amount of money that can be borrowed, the broker will typically require a minimum deposit. This is usually around two percent of the total value of the trade and it is repaid within a day. When determining your pip value the broker will use a formula that factors in the amount of currency that is currently owned, the current exchange rate against the dollar and the number of days since you last bought or sold. Your pip value is basically the difference between the current exchange rate and the purchase price of the currency. In order for your broker to provide you with the most accurate information about your limit you will need to provide them with your current and last trading activity. You should also be prepared to provide them with proof of current employment if you happen to work for a company that processes payments or receives payments from customers.
The key to exploiting leveraged opportunities in Forex trading is using leverage. Leverage is simply the ability to borrow money at a lower interest rate than you currently pay. If your leverage is five times your deposit and you want to buy one hundred thousand dollars of Japanese Yen, you would then borrow five million dollars. This means that you have five times the leverage that you would normally have because your broker has effectively doubled your deposit. The more times you use your leverage the higher your profit potential becomes because now you will only be paying interest on the amount of money that you have not yet borrowed.