The Forex industry is a very interesting one in that Forex traders have the ability to trade in far more currency than their principal investments would generally allow. This is the result of what’s known as a “trading margin.” So what is this trading margin, and why exactly should you care? Let’s talk about it!
Forex Trading Margin: What Is It?
A Forex trading margin is a ratio that defines the leverage a trader has in the market. Trading margins in the world of Forex range from 10:1 to 50:1 on average. So, when it comes to Forex trading, a $1 principal investment gives the trader the ability to trade from $10 to $50 worth of currency.
Forex Margins Are the Same as Stock Market Margins…Right?
For the most part, Forex margins and stock market margins are about the same. However, there are a few key differences:
Forex Trading Margins: Why You Should Care
Margins can work for you, and they can work against you. To be profitable in Forex, it’s important to understand the advantages added by margins as well as the risks. Here’s how the advantages and risks work:
If you’re looking to trade Forex, it’s worth the time to do a bit of research on trading margins and how they can help you as well as hurt you. Leave a comment below if you have any specific questions!
This article was written by Joshua Rodriguez, owner and founder ofÂ CNA Finance.
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