EXPLANATION

WHAT IS FOREIGN EXCHANGE?

Foreign Exchange is the exchange of one country’s currency for another. The rate of currencies is largely governed by prevailing global economic indicators particularly of the specific currency. A trader who wishes to deal in foreign exchange simultaneously buys one currency and sells the other with the intent of earning a profit when the values of currencies change. The Foreign Exchange or FX market is the world’s largest financial market, with a volume of over US $ 1.5 trillion per day. FX has always traditionally been an institutional or inter-bank market, however online services now offer simple and easy access to Foreign Exchange for retail investors and traders.FX has now become a leveraged product and can be traded on margin therefore some time called FX margin trading as well.

Margin :

When you open an FX position, you are not required to pay the full value of the trade. The online trading system of our principal allows trading on a 1 % margin, meaning that you would be required to deposit only 1% the position value known as “initial margin”. 1 % margin gives you leverage of 100 times on your account balance.Caution: It is important to remember that margin trading increases your exposure to risk and reward, therefore, losses and profits can be significantly higher.

How to calculate margin :

You buy EUR 125,000 spot EUR/USD @ 1.2730.You are required to have a minimum of 1% margin in your account.
EUR 125,000 X 1%(0.01) = EUR 1250 or US$ 1,591(1250X1.2730)
To hold this position you are required to have US$ 981 or above as initial margin.

Sample Trade :

You buy EUR 125,000 spot EUR/USD @ 1.2730.(EUR/USD rate now reaches to 1.2760).You sell EUR 125,000 spot EUR/USD @ 1.2760.Buying spot EUR/USD rate = 1.2730.Selling spot EUR/USD rate = 1.2760.Difference in buying and selling rate = 0.0030.Profit calculation = 125,000 X 0.0030.Gross Profit before trade commission = US$ 375.