4 essentials you must know to start trading forex
Trading capital, leverage & margin, contract size, determining profit
These are the four important concepts that we must cover to introduce forex trading to participants at our Free Forex Seminar. Most questions are also directed to these.
Do I need a lot of trading capital to start trading Forex?
The answer is No. You do not need a lot of money to start trading as Forex is a leveraged financial instrument which works on margin. In fact, you could open an account with as little as $200. Read this article ‘How to determine an individual’s trading capital for forex trading‘.
What is leverage & margin?
When you wish to trade, you would need to put some money in an account with a broker as your trading capital.
The broker will offer you a leverage. Assuming the offered leverage is 1:100, this means your trading capacity is 100 times of your trading capital.
Every time you place a trade, your broker will need to ensure you have enough money in your trading account. They will set aside a portion of your trading capital as a good faith deposit for opening the trade, this is the margin that you will be using for the trade. The amount of margin used depends on your trade size.
What are the different contract sizes available?
There are 3 different contract sizes which you can trade. Each contract size corresponds to an amount which you are trading on the market.
- Micro, trading a volume of $1000 on the market
- Mini, trading a volume of $10,000 on the market
- Standard, trading a volume of $100,000 on the market
*The good news is, if for example you want to trade a Standard contract, you do not need $100,000 in your trading account. If your leverage is 1:100, then all you need is 1% of $100,000 which is $1000.
How to determine how much profit we earn?
We track movement in forex in pips (percentage in points). This is the unit of measure. How much you win or lose depends on the contract size you are trading as well as the number of pips gained or lost.
The table below shows how much you need (margin required) to trade each of these contract sizes as well as a calculation of pips.
Below are recent tweets from our student letting us know he profited on a EURNZD trade we guided on tweeter. The amount he earns would depend on his contract size.
@terraseeds Hello Binni, eurnzd +100 pips 1st batch. Leaving 2nd batch to run. Thank you, enjoy your ice cream ya! Haha.
— Desmond Goh (@DGdesmondgoh) October 15, 2013
@terraseeds Hi Binni, eurnzd 2nd batch out at +200 pips, thank you!
— Desmond Goh (@DGdesmondgoh) October 16, 2013