When a position is open in the Forex market, the market moves either towards or against the position of the trader. Each item in the price move corresponds to a fixed amount of capital that is added or subtracted from the balance of the trading account. If the market moves in the direction of the trader’s position, he makes money; if not, the trader is losing money.
Currency trading is made in the form of ‘contracts’ for a certain number of so-called standard lots. Each lot is equivalent to 100,000 units of currency. If the dollar is used as the quotation currency and the trader opens a position for one standard lot, he buys or sells 100,000 units of this currency.
Since the price move of a currency is measured in points – that is, each item has a share of 0.0001, – when trading with a standard lot, each item costs $10 (0.0001 x $100,000 = $10). If the transaction brings 10 points of profit, the trader earns $100. If the price goes 10 points to the opposite side of the position, then the trader loses $100.
Not everyone has such a capital that allows you to trade currencies in the amount of $100,000, so you can use leverage, that is, borrow money from a broker to make a deal for $100,000 in the absence of $100,000 in your trading account.
When you use leverage when you open a position, you receive capital loan, but this money does not actually come to you to the account. However, you see how the current result of an open position changes, because now each item is more expensive, and price movement in one direction or another can potentially bring a higher profit or loss.
When performing trading operations on the “Margin Trading” terms, a relatively small change in the instrument rate can have a significant impact on the status of the Client’s trading account due to the effect of leverage. When the market moves against the position of the Client, he may incur a loss in the amount of the initial deposit and any additional funds deposited by him to maintain open positions. The client is fully responsible for taking into account all risks, using financial resources and choosing an appropriate trading strategy.
When executing trading operations under margin trading conditions, even small market movements may have great impact on a Client’s trading account due to the effect of leverage. The Client must consider that if the trend on the market is against them, the Client may sustain a total loss of their initial margin and any additional funds deposited to maintain open positions. The Client shall hold full responsibility for all risks, financial resources used and the chosen trading strategy.
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