Running a margin calculator will yield information about the amount of money that the forex trader should have in his trading account to enable him to buy or sell a particular currency pair. This amount would depend on the leverage ratio and the currency price prevailing at the time of the trade. The risks involved in trading at leverage are not determined by the margin calculator. The leverage itself along with the other characteristics of the specific currencies being traded indicates the amount of risk a forex trader is taking on. That being said, how then can a forex trader determine what trading margin would expose him to less risk?
There are forex trading information that are not given by the margin calculator. What the margin calculator simply does is to tell you how much you need to invest to buy a specific currency pair. You can hold one or several of these currency pairs for as long as you have enough balance in your trading account. The higher your trading account’s leverage amount is, the lower the amount of the required minimum investment would be. When you have deposited your margin requirement into your forex trading account, you can already open a position on your chosen currency pair.
From the risk management point-of-view, you might ask “how do you determine the safety of a particular trading margin?” Deciding on the safe trading margin level is not a function of a margin calculator. You would have to understand yourself and your forex trading style in order to determine whether or not to use your money to get into position. If your trading personality can take the risks, you can do well with a highly leveraged account that requires you to put in a smaller amount of money in margin. If you are not as risk tolerant, however, you can opt to have a less leveraged account with a higher amount of required margin.
Determining what is a safe trading margin with the help of a margin calculator also involves a look at the total picture. One winning position with a specific trading margin can easily be wiped out when another open position swallows up the trade margin and the rest of the money on the trading account. Remember that every trade you open takes an amount from your trading account to serve as your deposit on your open trade. Once you close your position, your gain or loss will be moved back to your account balance. A safe trade margin, therefore, would be one that does not expose you to greater risks and that leaves enough room in your account balance as a buffer for price movements in the market.
There are inherent risks in the forex trading market that you will have to face one way or another. Tempering your trading practices based on the level of risk that you are willing to take on will give you a more pleasant trading experience. Entering the forex market with your eyes wide open about these risks as well as the prospects in earnings is always advised. In the end, your success in the forex trading market will be determined by how you were able to manage your margin and leverage vis-à-vis your interpretations of price movements and earning opportunities in the forex market.
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