In Forex trading there are two terms that are extremely alike. In fact, they basically have the same meaning. The basics of Forex trading involve knowing what margin and leverage trading are.
Leverage trading is trading under a ratio format. The common leverage quote ratio is 100 to 1. This means that for every 100 units you want to trade, you are only required to use 1 unit as leverage. For example, you would only need to use $2,000 to trade $200,000.
Margin trading is similar, but different as well. Margins are quoted in the form of percentages instead of ratios. The amount of margin required to trade currency would be in the form of a percentage of the currency to be traded.
For the average person becoming a Forex trader, the difference between the two can mean big profits or fast capital loss. If you have limited amounts used for capital, leverage trading allows you to earn higher profits. Margin trading can work either way. With margin trading, if the trader is not careful there will be huge losses.
To being trading, you will need to open an account with a Forex broker. You will be required to deposit funds into your account. These amounts vary and are decided by the broker. Some of the funds are set aside for your leverage or margin.
Keeping close track of your available funds is crucial. The remaining funds that you have may be needed in order to compensate for any losses you suffer in a trade. If you do not have enough funds in your account to cover losses, your broker will have to liquidate your trades and you will suffer a bigger loss than if you had the funds to cover it.
If you are familiar with trading, and are confident in your abilities, then you can use margin trading. It is recommended, however, that if you are new to trading, you should stick to leverage trading. Leverage trading is the safest way to gain the trading experience that you need. After a decent amount of time, you can try your hand at margin trading. Make sure that you have a decent amount of funds in your account to keep things going down the road to huge loss. In addition, you can use a stop loss to cut any losses you may suffer, before you reach broker liquidation.
