7 Benefits of Forex Trading

In this article, we will review seven benefits of Forex trading, and those who continue reading until the end of the article will be able to learn about each of these benefits. There are many important benefits that you gain from Forex trading, and I will review each of them, but what we will start with are the benefits that no one has mentioned. truly.

Trading with leverage

This is what we call trading on margin, so let us take a closer look now at the trading method the first element then is the financial leverage that allows controlling a large value of the currency by only having to deposit a small amount and this is what is known as trading on margin so what we will do is review Example using the Swiss dollar to illustrate how trading on margin works and the risks and benefits of leverage, what we need to do.

Currency Margin Rate in Forex

First is knowing the margin rate for the Swiss dollar, and we can find that out by looking at the Swiss dollar chart. If we ever want to know some information about an instrument is a good opportunity to find it by looking at the details of the instrument, so I’m just going to click there and that pane opens up on the right side. From the window and then the additional information section at the bottom where we can see the margin is listed as half a percent, which are the margin rates that I use in my account and as a professional trader.

Examples of leverage in Forex

An example of leverage in Forex would be four Swiss dollars in the US dollar to the Swiss franc. As we have just seen, the margin rate with a trade of 1/2 is only half a percent for this currency pair. For a professional client, this means that you need to deposit only half a percent of Currency in a position The value of the base position is now half percent is 1200, so the leverage is from 1 to 200 USD in margin, and it will require 200 USD in the value of the base currency.

And to give you a visual representation to try to illustrate this point, they say that you’re using a thousand dollars as margin, so it’s represented by this highlighted section here which is the thousand dollars that you’ve deposited into your account now for simplicity, I’m just talking about dollars because that’s the base currency for Swiss trading in dollars but of course The margin you deposit into your account will be in whatever currency your account is denominated in.

For example, the pound or the euro or whatever now the leverage for the Swiss dollar is 1 to 200 as we just saw so you can take a position two hundred times larger than that amount so you can take a two hundred thousand dollar position represented here by this much larger section. You can take this position in Swiss dollars only by placing the amount of one thousand dollars, which we have to explain here, despite the convenience of trading on margin, placing a small amount to get a much larger exposure, but it is

What is very important is that you are aware at all times of the amount of that base currency you control and that you are aware of the risk involved.

Explaining the concept of financial leverage in numbers

Let’s go through some very simple numbers to explain this further, the Li Bridge example, where we said you can open a position worth $200,000 US dollars. Let’s say you choose to buy two hundred thousand Swiss dollars at the exchange rate. Let’s say zero point nine seven nine two. Let’s say the exchange rate rises and you’re able to sell your position at a profit, so you sell $200,000 in Swiss dollars at an exchange rate of, let’s say, zero two point nine 802 and one point for the Swiss dollar equals zero point zero 1 so one point is the fourth decimal place and therefore this is a ten-point increase in the exchange rate, a profit of 10 points for you. 

And when we say one point zero point zero none none none 1 of the exchange rate, the exchange rate is, of course, an expression of the number of Swiss francs that you get for each unit of the base currency in the base currency, which is the US dollar so that one point is none point none none

Something like 1 Swiss franc per US dollar.

So your profit is a transaction size of 200,000 US dollars multiplied by the pip value multiplied by the number of pips you made, so your profit if you deal these numbers through is equal to 200 Swiss francs at an exchange rate equal to zero pip nine 802, which is approximately 204 dollars American profits.

If we take a profit of $204 and compare it to your margin deposit of $1000, the profit is greater than 10% of that margin. Now, let’s consider a non-leveraged version of the trade where you can invest $200,000. If we convert it to Swiss francs and then convert it back with the same number of points of profit, we can expect a similar return., the $204 expressed as a percentage of that two hundred thousand would be about zero point one percent.

The effect of leverage on trading

Leverage can increase profits, but also amplify losses. For example, taking a trade with a 10 pip loss would result in a $1000 margin.. This means that instead of a $204 profit, you will experience a loss of the same amount. However, because the loss is expressed as a percentage of your margin, it will be greater than 20%. It’s important to remember that leverage can work in both directions, so it’s essential to manage your risk carefully.