For forex traders, it is often necessary to trade on a margin in order to boost their potential profits. The concept of margin is often taken with the concept of leverage. This means that forex traders can trade with higher amounts than what they have in their trading account. The leverage is the number of times by which the trader’s capital is multiplied to allow him to purchase an amount of currency. The margin, on the other hand, is the equity that the forex trader is required to put into the trade. The higher the leverage, the lower the margin requirement is. As margins have an impact on the trading account balance, a forex trader needs to use a tool like the margin calculator in order to compute for the amount they have to keep in their account to cover any potential losses.
In as much as trading on a margin allows you to take advantage of higher profit potential, it can also put your trading account in danger of being wiped out if you do not use it wisely. Not a few trading accounts have been zeroed out with a margin call on high leveraged trades that failed to pull through. Forex traders are always advised to be careful about the margins they choose to trade with and ensure that they have enough money to cover whatever potential losses that they might sustain with an unfavorable trade. The right levels of margin and leverage could work to the forex trader’s advantage.
A forex margin calculator can help forex traders find out how much money they need in order to get into position. You can download a calculator from online websites or from your own trading system. These calculators are fairly easy to use with only a few figures to key in to get the exact amount of equity that you are to put in as margin requirement. Among the information that the tool needs to calculate your margin for you are: capital, margin ratio, currency pair, and the transaction size. Knowing this before you enter your trades will allow you to evaluate your odds and determine if you have the financial resources necessary to get into position.
The margin calculator is only one of the tools that you can use in your forex trading activities. This tool is usually free to download and use – there is no reason why you should not take advantage of the information that they provide. With this information, you are able to wisely consider your odds and see how much you are risking with your trades especially when you are trading on a high margin ratio.
It is always wise to consider your risks more objectively before you enter into high leveraged trades. Getting greedy with the huge potential of gains that high leverages magnify can end dismally with a mistaken market reading. Use the margin calculator along with other trading tools in order to cover all your bases in ensuring that the odds are in your favor with your all trades, leveraged or not.