Forex Trading Best Leveraging concept in the World
Forex trading is the acronym of foreign exchange trading. It is basically about trading currencies from different countries against one another.
It can be illustrated with the help of the following example, in India the currency in use is called the Indian rupee (INR) and in the United States the currency in use is called the US Dollar (USD). An example of a Forex trade is to buy the INR while simultaneously selling US Dollar. This is called going long on the INR/USD.
Base currency in Forex trading is one which is mentioned first in a currency pair on Forex. It is usually the domestic currency and is used for accounting purposes.
As a Forex trader one can choose a pair of currency which one expects to change in value and place a transaction accordingly. For example, if you had purchased 2,000 Euros in February of 2007, it would have cost you around $2,400 USD. Throughout the year 2007 the value of Euro vs. the value of USD increased. At the end of the financial year 2,000 Euros were equivalent to $2,600 U.S. Dollars. If you had terminated your trade at that point of time, then you would have made a profit of 200 USD.
Why Is Leverage Such A Big Deal In Forex Trading in India?
- Round the clock trading- The currency market is the only market in the world that is actually open 24 hours a day with decent liquidity throughout the day. For traders who work during the day time or have a very hectic schedule, it is surely the right market to trade in. The majority trading hubs are spread throughout many different time zones, which eradicate the need to wait for an opening or closing bell. As the U.S. trading closes, other markets in the East are opening or are about to open, making it possible to trade at any time during the day.
- Leverage offered- Though currencies do not move as sharply as equities on a percentage basis, it is the leverage in the spot market that creates the volatility. Usually the leverage is as follows :-
- Equities: Leverage is Two: One. 2:1
- Commodity: Leverage is Twenty: One. 20:1
- Currencies (Forex Trading): Leverage is Hundred: One 100:1 or even more
Therefore the high leverage offered in Forex trading may result in larger profits or larger losses.
- No Upper Limit/Bottom Limit- Futures markets contain certain restrictions that limit the number and type of transactions that a trader can make under certain price conditions. When the value of a certain currency rises or dips beyond a certain pre-determined daily level, traders are restricted from acquiring new positions and are restricted only to liquidate existing positions if they so desire. This is done to control daily price volatility but as the futures currency market follows the spot market, the following day the futures price will re-adjust itself to the spot price the next day. In the OTC market no such trading limitations exist therefore allowing the trader to truly implement his trading tactics to the fullest extent. A trader can conserve his position from unexpected price movements with stop-loss orders thus the high volatility in the spot market can be fully controlled.
- Forex trading offers you very high liquidity, in comparison to other trading options.
- In India forex trading leverage is 1:50, If the broker is offering you more leverage please ask and clarify him, How he is doing so? Because if leverage is more it’s the Risk of broker for the losses & profits gained from user.
- Therefore Forex trading may be a bane or a boon depending on the fundamentals of the investor as well as the leverage that is chosen by the investor.
- Those who are really looking for Extra Income with whatever profession you have currency .. there is no other option than Forex Trading.
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