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Make Money with Forex Trading ?
Posted by RAJESH KUMAR
on
2:34 AM
Let us assume that at present 1 USD = .71585 EURO (1 EUR = 1.39694 USD) and a trader has $100,000. He decides to buy EUR at the current price and ends up getting 71,585 EURO. After a few days, the euro appreciates and the new exchange rate is 1 EUR = 1.40101 USD. The trader sells his EURO for USD and in turn makes a profit. This is because on selling EUROs, he gets $100,291.30085; whereas, he started off with $100,000. In other words, in a span of a few days the trader earns $291.30085, which is approximately a return of .29% on his investment. Since 1 pip = .0001 (for EUR/USD pair), the trader made 29 pips.
In case the trader had only $10,000 to begin with, he could have obtained the remaining $90,000 from the retail broker. This is known as margin trading. Had he traded on margin his return would have been 2.91% instead of .29%! This is why leveraging is desirable. Had the trader made a mistake in assessing the direction of the currency movement he might have ended up losing his margin account because of huge losses. This is one of the drawbacks of employing excessive leverage
In case the trader had only $10,000 to begin with, he could have obtained the remaining $90,000 from the retail broker. This is known as margin trading. Had he traded on margin his return would have been 2.91% instead of .29%! This is why leveraging is desirable. Had the trader made a mistake in assessing the direction of the currency movement he might have ended up losing his margin account because of huge losses. This is one of the drawbacks of employing excessive leverage
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