Review Category : News

Foreign Exchange and a Dozen Eggs

Foreign Exchange

Unless you go to a farmer at a farmer’s market who is willing to sell just one egg, you are limited at the store in how many eggs you have to buy. Even if you only want to buy one egg you have three choices. You can buy half a dozen, a dozen, or 18 dozen. If you shop at a warehouse you may have only one choice of two dozen. In foreign exchange you are limited to how you can buy or sell currency pairs. You would not want to buy just 1 euro, 1 USD, or 1 JPY. It does not make sense since the profit would be nothing. It is why you have lot sizes you have to buy in. Unfortunately, buying or selling in lot sizes can also create an issue with the amount of money you have. The following takes a look at this situation.

Foreign Exchange Lot Sizes from Dealers

Dealers or brokers determine the lot sizes they deal in. Some brokers will not provide a choice. Other brokers have three choices you can buy or sell in. Lot sizes for foreign exchange are in even units.
· Micro= 1,000 units or 1,000 in one currency
· Mini= 10,000 units
· Standard= 100,000

You may find a broker willing to deal in 1 mil units too. Since this is an Australian site consider 1,000 units as $1,000 AUD, thus 10,000 units is $10,000 Aussie dollars.

A single lot size in foreign exchange is also considered 1 contract. If you have 3 contracts you have 3 of a lot size. If you decide you want 3 contracts of $1,000 AUD that would be $3,000 AUD as your investment.

Now you are thinking you only have a micro account with $250 AUD as the deposit. It does not make even one lot size. It makes you wonder how anyone can trade in the forex market when the average trader has such a small deposit amount in their account. This is where margin trading comes in.

Foreign Exchange Margin Trading is an Extension

Margin trading is based on leverage. Leverage is the vocabulary word assigned to the borrowing of enough capital to place an order. You might have $250 in your account; however, with leverage you could trade 3 contracts of $100K AUD in foreign exchange.

An example will be examined in a different article, but for now understand that margin trading is a percentage of the capital you have in your account. You can trade with a certain percentage to cover your actual investment in the market. You might decide to trade 1,000 units at 2 per cent margin. You could even trade 100K with a 2 per cent margin with nothing more than $25 as the account deposit.

Leverage is one of the major benefits to foreign exchange since you could make $500 with only $25 in your account. Since it is a difficult concept it will need a full explanation and example so seek out more details before you consider using leverage as it can be dangerous.

 

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Advantages of Mobile FX Trading

fx trading

The popularity of fx trading and the technological advancements in mobile devices have come as a blessing for traders looking for an investment opportunity. Traders wishing to trade earlier had to access their computers to be able to place a trade. Due to this restriction, they were not able to take advantage of the many trading opportunities available in the foreign exchange market.

The forex market is open for trading all through the day and this provides traders many profit making opportunities. When you use a mobile device to place a trade you can do market analysis and execute a trade irrespective of whether you are at the office, home or travelling. The mobile trading platform provided by Meta Trader 4 has all the features available in a standard trading platform installed on a desktop and this can help you place a trade easily.

Top advantages of mobile fx trading

Most traders are busy and may not be able to sit in front of a computer and watch the forex market all through the day. This denies them the opportunity to place a trade in favourable market conditions. When you use a mobile device for fx trading you can become aware of the market movements anywhere and anytime. As traders carry their mobile devices with them wherever they go they do not miss any trading opportunity available in the forex market.

The foreign exchange market is volatile and most of the favourable trading opportunities are available only for a few minutes. Traders tend to miss out on these profitable trades but the advanced trading platform available on mobile devices enables them to get an alert about the changing market conditions and this can help them choose an entry and exit point easily.

When you use a mobile device to trade you may get easy access to your trading account even when you are travelling. You may be able to view your account balance, leverage, open positions and other trade related information easily. This can enable you to take important investment decisions easily.

You may be able to place a trade as per your convenience and you can buy and sell currency pairs of your choice easily using a mobile device. You get the freedom to manage your account irrespective of where you live in Australia.

Accessibility of automated fx trading with mobile devices

You can choose automated fx trading with your mobile devices. All that you need to do is to choose the parameters for placing a trade automatically. You can choose the parameters to trade after careful technical analysis. The trades are executed automatically when the specified conditions are met and this enables you to make consistent profits. You may be able to save a lot of time and effort when you use an automated mobile trading system to trade. You could improve your level of success in the forex market when you start using mobile devices to trade as these ensure that you do not miss any favourable trading opportunity.

 

 

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A Guide to Start Foreign Exchange Trading

foreign exchange trading

Nobody in this world was born to be a foreign exchange trader. Every individual who has ever become interested in foreign exchange trading has had to muddle through various difficulties of the forex market before becoming a successful trader. The fact that most new forex traders bumble through the market before finding their feet should give you pause for thought.

While contemplating, you should realise that you do not need to make the same mistakes that the majority of new traders make in the market. All you have to do to avoid the numerous and extremely common mistakes that new forex traders make in foreign exchange trading is to use the following guide.

Learn the Industry Jargon

The first thing you should do is learn the terms that are used in the trading industry. It does not matter whether you already know what pips and spreads are. You must learn all the industry jargon to a point where you do not have to look them up.

Familiarise yourself with the Platform

Next you must pick a good forex broker and get used to the trading platform it provides. There are various things you will need to look into to pick a good broker and platform, but you can learn about these on the internet easily. You will also have to familiarise yourself with the chosen platform because you do not want to incur losses due to mistaken clicks.

Pick a Trading System

After this, you should get down to studying different foreign exchange trading systems and pick one that fits your personality. For this, you should study the various styles of forex trading and understand what they require. Pay special attention to what personality traits are needed for which styles so that you are not out of your comfort zone too much.

Study Price Movements & Indicators

You need a basic understanding of price movements to be competent at foreign exchange trading. In addition to this, you will have to learn about using various technical indicators as well because advanced strategies rely on these indicators.

Manage Your Money Management Principles

Foreign exchange trading is all about being able to negate risks to take home profits. This means that you will need to learn how to manage your account equity and individual trades. This is where special orders also come into play.

Create a Trading Plan

Whatever foreign exchange strategy you have chosen, you will have to house it within an effective trading plan. Your trading plan will help you stay consistent and thwart the impact of being emotional.

Thus, devising a trading plan should be one of your priorities as well. Your trading plan should also include the maintenance of a trading journal for the sake of accountability and improvement.

Practise with Demos

You should never start forex trading without practising on demo accounts first. Demo accounts contain virtual money but also provide real time conditions of the market. After practising with demo accounts, you should start with smaller foreign exchange trading accounts before opening a standard one.

 

 

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Bank of England Prioritise Inflation To Bolster Forex Charts

UK data

The Bank of England is currently focused on UK’s inflation to spark an increase in fair values. Before going deeper into the discussion, forex analysts are confident on the long term prospect of the UK currency. The UK Sterling is considered to be amongst the cheapest G10 currencies taken from a valuation perspective according to BNP Paribas. To sustain this backdrop, the Bank of England need to focus on inflation that has ended the expectations on it which resulted to a floor limit on the UK Sterling.

BNP Paribas forex charts analyst forecast GBP/USD to climb from 1.5100 towards the end of 2013 to 1.5800 towards the end of 2014. Thus, the broker expects the forex charts for EUR/GBP to edge down from 0.8500 in 2013 to 0.7800 and 0.7600 at end 2014 and 2015, respectively.

Monetary Policy

The UK Sterling is assuming a negative to neutral monetary fiscal dynamics. The key driver of the UK Sterling weakness in the forex charts was the hiking inflation expectations. This is driven by assumptions that the Bank of England would get rid of its inflation targets. The Bank of England’s forward guidance was not able to hurt the currency due to the restrictions on inflation and inflation expectations. It has led to a monetary policy that is no longer a barrier to a strengthening of UK Sterling to its better valuation.

UK Economic Drivers

The UK economy may have suffered some big losses to the level of productivity. However, most economists believe that productivity will remain stagnant as economic activity recovers. Barclays forecast for unemployment fall only gradually, achieving the 7% threshold towards the end of 2016.

UK GDP is estimated to have climbed by 0.7% Q/Q in the second quarter after a 0.3% widening in the first quarter. The momentum in forex charts has been reinforced byt the PMIs that are fairly strong. The strength has been broad based, primarily driven by services, manufacturing and construction industries.

Financial markets appear to be sceptical that, with the economy apparently growing rather rapidly, the unemployment rate will remain above 7% for long and/or the inflation outlook will remain benign.

Risks

Forex charts analysts have a great concerns on UK exports. The UK is highly dependent on the euro area for export sales. The demand outlook from the currency bloc is subdued. UK exports to countries outside the European Union have been weak, like those of other European Union countries. This despite the fact that the rest of the world has not been in recession. This signals the lack of competitiveness on the part of UK exporters. Although Barclays analysts are still doubtful if UK can still “rebalance” its direction.

Fiscal consolidation continues to be a drag on UK domestic demand. The UK treasury estimates the degree of discretionary tightening to be approximately 1.3% of GDP every year. Deficit is high around 6% of GDP. The Office for Budget Responsibility has just forecasted that it will be another three years before the current budget becomes a surplus. Added to it, there should be four years until such time the public sector’s net debt will decrease as a share of GDP. The forex charts analysts are also concerned with the looming election in May 2015 translates a bias towards less austerity over the next eighteen months.

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Greenback Cheap Relative To Front-End Yield Spreads

Yield Spreads

The US dollar is turning a corner and thus expect the currency to strengthen over next year when the Fed winds down its Quantitative Easing programme and FX trading markets alerted for rate increases in 2015. BNP Paribas is certain that prospects will be more mixed in the fourth quarter, as the Fed will disappoint expectations for a year end tapering of asset purchases.

BNP Paribas FX trading analysts reiterated that the greenback can hold up well versus extremely low yielding currencies like the CHF and JPY, while gaining ground against currencies where the central bank is inclined against stricter financial conditions like the EUR and GBP. Higher yielding commodity bloc currencies are expected to outperform as short positions are pressured. Moreover, negotiations on fiscal measures will create greater exposure to short term risk to the USD in October but FX trading analysts expect a benign resolution to it.

Yield Support

As said earlier, most brokers favour the USD vs. the G10 FX bloc. But there is an exception to this and these are NZD, AUD and CAD. FX trading analysts are confident that the US will accelerate its economic growth by fourth quarter. Therefore, the USD should benefit from front-end yield support versus currencies where domestic monetary environment are more conducive. Inversely, CAD and AUD should undergo a recovery towards year end due to better global growth outlook. The same investment thesis applies to few Emerging Markets currencies like MXN, CZK and KRW.

According to BNP Paribas FX positioning analysis, the trade-weighted USD is about 0.5% above its long-term fair value. This is not an extreme deviation by historical standards and the USD has scope to rise without appearing notably overvalued. On a bilateral basis, the USD appears overvalued against the GBP, JPY and emerging market currencies, and is cheap versus the CAD, NZD and EUR.

The bullish view of FX trading strategists on the USD was the result of a combined Fed Quantitative Tapering expectations, more resilient domestic data and the Larry Summers likely to become the new Fed Chairman. The USD lost ground in September that led to its worst monthly performance in nearly two years. The DXY declined by 2.1%.

Meanwhile, commodity currencies and Emerging Markets were anchored by a lower US 10y yields and through optimistic news from China, thus offsetting a portion of its losses. Moreover, the greenback was harmed with the impasse over the US debt ceiling which should be resolved later on.

Monetary Policy Update

Sound economic growth surprises emerged from the UK and euro area, as opposed to the investment themes of US economic performance this year. According to BNP Paribas FX trading strategists, the developments from China improved that led to the pricing out of the “hard landing” scenario. The scenario described inclide policymakers’ forward guidance , growth outlook and investor sentiment on the pace of central bank’s decisions.

Hence, economists argued that the US dollar will still be dataflow dependent once the US fiscal situation is fixed. They are more confident that the pickup in US survey data confirm quicker fourth quarter economic growth which should eventually drive a more solid USD. Consequently, BNP Paribas expect the backend of the US bond market to rally, which will ease FX risk sentiment. They expect more gains in CAD and AUD until the tapering starts most probably in 2014. GBP and EUR are seen to be stagnant, but existing levels are not sustainable as the ECB and the Bank of England meeting statements would still be in dovish tone.

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Using the Commonly Traded Foreign Exchange Rates

Common Foreign Exchange Rates

There are a number of foreign exchange rates that you need to consider when you trade on the forex market.  The most commonly traded currencies are the ones that you should consider when you first start trading.  There are a number of reasons why you should be looking at these currencies and not the other currencies on the market.  It is best that you know what these reasons are so that you better understand the foreign exchange rates that you are trading.

Foreign Exchange Rates for New Traders

When you are a new trader you will be told to look at the most commonly traded currencies.  These currencies are the ones with the largest economies and the greatest amount of information.  The currencies are ideal for new traders because of the easy access to information.

The commonly traded currencies will also make up the most commonly traded currency pairs.  These pairs are the ones that you are most likely to get with the forex brokers.  If you are looking for a more exotic currency pair then you may have to use a broker that is not very new trader friendly.

The Movement on the Market

When you look at market movement you should try and find a currency pair that moves in a predictable manner.  Most traders assume that all currencies more in a predictable manner and this is why you can analyse them.  The truth is that certain currencies are more predictable than others.  This has to do with the liquidity of the currency.

If a currency is highly liquid then this means that a lot of traders are using it.  However, if the currency pair is not liquid then there are few traders trading with this.  The liquidity of the currency pair will affect the predictability of it.  When a currency is not liquid then a couple of high volume trades can cause a movement that other traders are not expecting.  This is something that you can find with the exotic currency pairs.

The Spreads that You Get

The spreads that you get from your broker should be looked at when you are trading.  The spreads can have a major impact on the profits that you make on the market.  If you have a wide spread, then you have to have a bigger movement to make a profit.  The commonly traded currencies will have the best spreads on the market.  This is due to the high volume of trades that are completed with these currencies.

If you are looking at fixed spreads then you will find that the exotic currencies have a wider fixed spread.  This will affect your trading because wide spreads can limit the strategies that you use to trade with.  If you have a wide spread you will not be able you trade with some of the extreme short-term trading strategies like scalping.  These strategies require a tight spread because of the small movements that you are going to be using on the market.  Long-term traders are able to use wider spreads, but this will affect the profits that they ultimately make.

 

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Common Foreign Exchange Rate Trading Errors

Common Foreign Exchange Rate Trading Errors

Every trader, from beginner to mature, will make mistakes when trading on the forex market.  It is an inevitable fact.  However, the key to becoming a successful and effective trader is not to blame others, but to learn from your mistakes.  It is through learning and determining why you made that error that you are able to avoid it in the future. There are certain common foreign exchange rate trading errors which can be easily avoided, if you know what to look for. This article reviews the noted mistakes and discusses how to bypass them.

Emotional Foreign Exchange Rate Trading

One of a trader’s greatest obstacles is that of human emotion. Traders will be faced with many stressful situations, and if you are not prepared for them you may find yourself experiencing an onslaught of intense emotions. Both profitable and negative trades will incite certain emotions, but the most common is that of greed.

Greed is felt in a favourable market and can be just as damaging to your trading account balance as trades made in a panicky or anxious psychological state. Often greedy traders will believe that a profitable trade may become more favourable if left alone despite the warning signs. Eventually the profit may turn into a loss because of the traders clouded judgement.

Emotions can be highly influential and must not be present when trading. This is why one must have a strong trading strategy and risk management plan which eliminates all chances of emotional trading.

Be Aware of the Market

Many of the more experienced traders state that one should always keep an eye on the financial news releases and incorporate it into your trading strategy. However, the one problem is the news may be misleading. One must always be aware of what news is important to your trading and what is irrelevant. Many new traders make the mistake of relying too heavily on the news and not focusing on the forex market, thus making potentially damaging trades. To avoid this mistake use a news strategy as one aspect of your trading strategy. Incorporating it as a part of technical analysis ensures you will always have an eye on both forex news and the forex market.

Follow the Figures

The most successful forex trades are generally based on factual data derived from hours of technical analysis. This is one aspect of trading that all forex traders must keep in mind when participating in the market. It is easy to deviate from factual trades when listening to rumours and ‘hot tips’ from different traders and brokers, however these must be taken as rumours and will often result in more losses than profits. You must take time to double check any information you receive, both from informants and in your analysis. It is always best to base all trades on solid facts as this is the route to effective trading.

 

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Foreign Currency Exchange Terminology That Will Be Useful

mrs wantabe forex trading

Trading foreign currency exchange successfully involves learning a jargon that’s a bit different from other capital markets. For instance, there’s the question of whether or not you want to trade “loonies” (the nickname of the Canadian dollar) or “cable” (the trade name for the British pound). There’s also the question of who is trading. Is “Buba” (the forex moniker for the German central bank) around or is “Mrs Watanabe” (the collective name for the army of Japanese housewives who have discovered the joys of forex trading since their country starting sporting near-zero- percent interest rates) back in action? And, just how much are we talking about – “a yard” (“a billion”, derived from the French equivalent – “un milliard”) or more?
The media is prone to talk about liquidity as if the industry has some kind of cash problem. This is a bit hysterical. According to the latest forex survey conducted by the Bank For International Settlements, daily gross turnover in all forex markets is $5.3 trillion (with 1, 300 banks participating).

Liquidity and Volatility In Foreign Currency Exchange Trading

In foreign currency exchange, liquidity is the term used for the amount of cash instantly available to finance a transaction. When both London and New York City are open, liquidity is usually very deep. After San Francisco leaves the office and before Auckland rolls in the door, liquidity can be quite shallow. Volatility, on the other hand, refers to the rate of change in pricing. (Sometimes, this is called “the VIX” – “the Volatility Index” – as calculated by the Chicago Board Options Exchange.) When volatility is high, prices are going crazy. When volatility is low, prices are near comatose. As a trader, you want some volatility, but not a huge amount. If things get too volatile, the banks will begin to withdraw.

Leverage And Its Function In Foreign Currency Exchange

Leverage refers to the amount of debt that you take on in order to finance a forex position. With the exception of the US, Canada and Japan, the retail norm is a ratio of 100:1 or more. This means that $1 of your cash is anchoring a $100 trade position. Or, to put it another way, if you place 1% down, you can control a $100 trade position. The good news is that, with this kind of ratio, you only need a 1% change in pricing to produce a 100% return on capital. The bad news is that, with this kind of ratio, you only need a 1% change in pricing to wipe out all your capital. Reduce your leverage!

Chart, Fundamental And Technical Analysis For Foreign Currency Exchange

Currency pair charts form an integral part of forex trading. Done correctly, they’re like profit maps. While they’re over 50 main technical indicators, most people settle on a half dozen (like Fibonacci retracement arrays) to help plot and plan their trading strategies. Fundamental analysis, on the other hand, is pure economics. With the AUD/USD, for example, traders are always keeping an avid eye on the Reserve bank and any monetary policy meetings that could change interest rates. Generally speaking, a cut in interest rates adversely affects almost all AUD-related pairs – immediately. This is 1 reason why the EUR/AUD has been steadily rising throughout 2013. While it’s generally agreed that “European banks can’t go any lower”, the Reserve Bank certainly can.

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Foreign Currency Exchange Terminology That Will Be Useful

mrs wantabe forex trading

Trading foreign currency exchange successfully involves learning a jargon that’s a bit different from other capital markets. For instance, there’s the question of whether or not you want to trade “loonies” (the nickname of the Canadian dollar) or “cable” (the trade name for the British pound). There’s also the question of who is trading. Is “Buba” (the forex moniker for the German central bank) around or is “Mrs Watanabe” (the collective name for the army of Japanese housewives who have discovered the joys of forex trading since their country starting sporting near-zero- percent interest rates) back in action? And, just how much are we talking about – “a yard” (“a billion”, derived from the French equivalent – “un milliard”) or more?
The media is prone to talk about liquidity as if the industry has some kind of cash problem. This is a bit hysterical. According to the latest forex survey conducted by the Bank For International Settlements, daily gross turnover in all forex markets is $5.3 trillion (with 1, 300 banks participating).

Liquidity and Volatility In Foreign Currency Exchange Trading

In foreign currency exchange, liquidity is the term used for the amount of cash instantly available to finance a transaction. When both London and New York City are open, liquidity is usually very deep. After San Francisco leaves the office and before Auckland rolls in the door, liquidity can be quite shallow. Volatility, on the other hand, refers to the rate of change in pricing. (Sometimes, this is called “the VIX” – “the Volatility Index” – as calculated by the Chicago Board Options Exchange.) When volatility is high, prices are going crazy. When volatility is low, prices are near comatose. As a trader, you want some volatility, but not a huge amount. If things get too volatile, the banks will begin to withdraw.

Leverage And Its Function In Foreign Currency Exchange

Leverage refers to the amount of debt that you take on in order to finance a forex position. With the exception of the US, Canada and Japan, the retail norm is a ratio of 100:1 or more. This means that $1 of your cash is anchoring a $100 trade position. Or, to put it another way, if you place 1% down, you can control a $100 trade position. The good news is that, with this kind of ratio, you only need a 1% change in pricing to produce a 100% return on capital. The bad news is that, with this kind of ratio, you only need a 1% change in pricing to wipe out all your capital. Reduce your leverage!

Chart, Fundamental And Technical Analysis For Foreign Currency Exchange

Currency pair charts form an integral part of forex trading. Done correctly, they’re like profit maps. While they’re over 50 main technical indicators, most people settle on a half dozen (like Fibonacci retracement arrays) to help plot and plan their trading strategies. Fundamental analysis, on the other hand, is pure economics. With the AUD/USD, for example, traders are always keeping an avid eye on the Reserve bank and any monetary policy meetings that could change interest rates. Generally speaking, a cut in interest rates adversely affects almost all AUD-related pairs – immediately. This is 1 reason why the EUR/AUD has been steadily rising throughout 2013. While it’s generally agreed that “European banks can’t go any lower”, the Reserve Bank certainly can.

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Risks And Benefits Related To Foreign Exchange Sydney

Foreign Exchange Sydney Equities and Currencies

The size of the foreign exchange Sydney market, its global structure and the volatility present in the market are the reasons for the growth it has experienced in the last few years.  The market liquidity allows traders to place big trades without it having an effect on the value of currencies.  The margins required by forex brokers make it possible for traders to place large trades when using leverage.

Trading Times

The forex market trades day and night, and maintains high levels of liquidity throughout this time.  Traders who find that they are unable to enter the market on a full-time basis attempt to enter it anyway because of the extended trading times.  The main trading centres are situated all over the world which makes it easier for part-time traders to choose their most appropriate currency pairs and link it to their trading times.

Initial Capital

Traders can enter this market with an amount of $250 and be able to control trades to the value of $25000 by using the leverage offered by their forex brokers.  The high levels of leverage offered by brokers makes it possible to achieve huge profits in this market, but it also puts you at risk of suffering huge losses.  Leverage carries extremely high risks, yet it is this factor that attracts so many individuals to this trading market.

Risks Related to Foreign Exchange Sydney

This may be an exciting, fast-paced market, but the high risk involved in this market exceed those present in the equities market.  The high leverage is available in this market only and the same way you can achieve high profit levels, that same leverage could cause you to suffer great losses.  If you are a newcomer to this market, you must remain aware of this threat all the time.  Currency fluctuations are constant in the forex market due to the liquidity and the large number of traders in the market.  The sudden movements in market and price can be due to traders’ reactions to economic news releases and announcements.

Equities vs. Currencies

Percentage wise the movements in the equities markets are much faster than those in the currency market.  A corporation listed on the stock market could experience a devaluation of its stock price a few minutes after the release of unfavourable financial reports.  The levels of leverage can be blamed for volatility in the currency market, along with the perceptions of the traders.

To indicate this, imagine that you have a leverage ratio of 100:1, and your initial capital was $1000.  With this leverage ratio, you would be controlling a trade of $100000.  Let’s assume that you make use of that full amount on a single trade and your pair moves against you at a rate of 1%.  This means that your trade is now sitting at $99000.  The loss is representative of $1000 which makes up the total amount of your capital investment.  This means that you have shown a loss of 100%.  In the equities market, few traders have this level of leverage available for trading.  This implies that a 1% loss in that market would only amount to $10 if your initial investment was $1000.

This type of calculation should be undertaken before you enter your trades.  To avert the potential losses, you should implement suitable risk management methods.

 

 

 

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