Steps For Beginners
What is Margin?
Trading on a margined basis in forex trading is not a complicated concept as some may make it out to be. The easiest way to view margin trading is like this:
Essentially, when a trader trades on margin he is using a free short-term credit allowance from the institution that is offering the margin. This short-term credit allowance is used to purchase an amount of currency that greatly exceeds the account value of the trader. Margin serves as collateral to cover any losses that you might incur. Since nothing is actually being purchased or sold for delivery, the only requirement, and indeed the only real purpose for having funds in your account, is for sufficient margin.
The margin capacity Market Investment offers reflects our willingness to provide the trader with the level of risk he wishes to adopt, we do not however recommend trading with full margin capacity as this engages a large amount of risk. Ultimately the choice is left to the trader to make transactions that meet his appetite for risk.
How to trade Forex?
The forex market is the most liquid market on earth.
Placing an order is as simple as that: choose the currency pair, the amount of the base currency you want to trade, and if you want to buy or sell, when trading with an online platform, just click and there you are.
But though it sounds very easy, the forex market has its own rules, uses and usual practices.
In order to trade properly the following pages will provide you with important guidelines and tips.
All order types listed underneath are accepted by Market Investment and may be placed online.
A market order is an order to buy or sell at the current market price. Customers using Market Investment’s online currency trading platform click on the buy or sell button after having specified their deal size. The execution of the order is instantaneous. Placing a market order by phone is quite similar but usually takes a few seconds more time.
The exact process goes like this:
- A customer specifies the currency pair and the deal size to the system.
- The system gives a two-way price (BID and ASK price).
- The customer takes one of the two prices (he may ask for a re-quote).
- The system confirms the trade. Under normal market conditions.
Whether you choose to deal with Market Investment or another firm, you should be aware that it is a correct market practice for such institutions to quote two-way prices to a customer who wishes to trade. A firm that does not do so is almost certainly taking advantage of their customers’ ignorance as far trading procedures are concerned.
A limit order is an order placed to buy or sell at a certain price. The order essentially contains two variables, price and duration. The trader specifies the price at which he wishes to buy/sell a certain currency pair and also specifies the duration that the order should remain active.
GTC (Good till cancelled): A GTC order remains active in the market until the trader decides to cancel it. The dealer will not cancel the order at any time therefore it is the customer’s responsibility to remember that he possesses the order.
GFD (Good for the day): A GFD order remains active in the market until the end of the trading day. Since foreign exchange is an ongoing market the end of day must be a set hour. For Market Investment the end of the trading day occurs at exactly 23:00 CET.
A stop order is also an order placed to buy or sell at a certain price. The order contains the same two variables, price and duration. The main difference between a limit order and a stop order is that stop orders are usually used to limit loss potential on a transaction whilst limit orders are used to enter the market, add to a pre-existing position and profit taking. The same variations are used to specify duration as in limit orders (GTC and GFD). Let’s take the following example:
Another usage of a stop order is when a trader is expecting a price breakout to occur and wishes to grasp the opportunity to ‘ride’ the breakout. In this case a trade will place an order to buy or sell ‘on stop’.