tell me about " Leveraged financing " in forex

Leveraged financing is a common practice in Forex trading, and allows tradersto use credit, such as a trade purchased on margin, to maximize returns.Collateral for the loan/leverage in the margined account is provided by theinitial deposit. This can create the opportunity to control USD 100,000 for aslittle as USD 1,000.There are five ways private investors can trade in Forex, directly orindirectly:

• The spot market
• Forwards and futures
• Options
• Contracts for difference
• Spread betting

Please note that this book focuses on the most common way of trading in theForex market, “Day-Trading” (related to “Spot”). Please refer to the glossaryfor explanations of each of the five ways investors can trade in Forex

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Margin

Banks and/or online trading providers need collateral to ensure that

theinvestor can pay in the event of a loss. The collateral is called the

“margin” and is also known as minimum security in Forex markets.

In practice, it is adeposit to the trader's account that is intended to

cover any currency tradinglosses in the future.Margin enables

private investors to trade in markets that have high minimumunits 

of trading, by allowing traders to hold a much larger position
 than theiraccount value. Margin trading also enhances the rate of

profit, but  similarlyenhances the rate of loss, beyond that taken
without leveraging.

Maintenance Margin

Most trading platforms require a “maintenance margin”
be deposited by thetrader parallel to the margins deposited
for actual trades. The main reasonfor this is to ensure
the necessary amount is available in the event of a “gap”
or “slippage” in rates. Maintenance margins are also used to
coveradministrative costs.When a trader sets a Stop-Loss rate,
most market makers cannot guaranteethat the stop-loss will actually
be used. For example, if the market for aparticular counter currency
had a vertical fall from 1.1850 to 1.1900 betweenthe close and

opening of the market, and the trader had a stop-loss of 1.1875
,at which rate would the deal be closed? No matter how the rate
slippage isaccounted for, the trader would probably be required
to add-up on his initialmargin to finalize the automatically closed
transaction. The funds from themaintenance margin might be used for this purpose. 

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Spreads

 It is the difference between BUY and SELL, or BID and ASK.

 In other words, this is the difference between the market maker's

"selling" price (to its clients) and the price the market maker

"buys" it from its clients. If an investor buys a currency and

immediately sells it (and thus there is no change in the rate of

exchange), the investor will lose money. The reason for this is

 “the spread”.  At any given moment, the amount that will be

received in the counter currency when selling a unit of base

currency will be lower than the amount of counter currency which

 is required to purchase a unit of base currency.  For instance,

 the EUR/USD bid/ask currency rates at your bank may be

 1.2015/1.3015, representing a spread of 1,000 pips

 (percentage in points; one pip = 0.0001).  Such a rate is much

higher than the bid/ask currency rates that online Forex investors

 commonly encounter, such as 1.2015/1.2020, with a spread of 5 pips.

 In general, smaller spreads are better for Forex investors since

 they require a smaller movement in exchange rates in order to

profit from a trade.

Prices, Quotes and Indications

The price of a currency (in terms of the counter currency), is called “Quote”.

 There are two kinds of quotes in the Forex market: Direct Quote:

 the price for 1 US dollar in terms of the other currency, e.g. –

 Japanese Yen, Canadian dollar, etc. Indirect Quote: the price of

 1 unit of a currency in terms of US dollars, e.g. – British pound,

 euro. The market maker provides the investor with a quote.

  The quote is the price the market maker will honor when the deal

 is executed.  This is unlike an “indication” by the market maker,

 which informs the trader about the market price level, but is not

 the final rate for a deal. Cross rates – any quote which is not

 against the US dollar is called “cross”. For example, GBP/JPY is

a cross rate, since it is calculated via the US dollar. Here is how

 the GBP/JPY rate is calculated:

 GBP/USD = 1.7464;

USD/JPY = 112.29;

Therefore:  GBP/JPY = 112.29 x 1.7464 = 196.10

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Exchange rate

Because currencies are traded in pairs and exchanged one against
  the other when traded, the rate at which they are exchanged is
 called the exchange rate. The majority of currencies are traded
against the US dollar (USD), which is traded more than any other
 currency. The four currencies traded most frequently after
 the US dollar are the euro (EUR), the Japanese yen (JPY),
the British pound sterling (GBP) and the Swiss franc (CHF). These
 five currencies make up the majority of the market and are called
 the major currencies or “the Majors”. Some sources also include
 the Australian dollar (AUD) within the group of major currencies.
 The first currency in the exchange pair is referred to as the base
 currency. The second currency is the counter currency or quote
currency. The counter or quote currency is thus the numerator
 in the ratio, and the base currency is the denominator.
 The exchange rate tells a buyer how much of the counter or quote
currency must be paid to obtain one unit of the base currency.
The exchange rate also tells a seller how much is received in
 the counter or quote currency when selling one unit of the base
currency. For example, an exchange rate for EUR/USD of 1.2083
specifies to the buyer of euros that 1.2083 USD must be paid to
obtain 1 euro

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What is Forex trading? What is a Forex deal ؟

Dave Investor in Forex trading is to profit from foreign currency movements. More than 95% of the total trade exchange performance today is for speculative purposes (for example, to profit from currency movements). The rest belongs to the hedge (Business Management exposure to various currencies) and other activities. Forex Trading (trading platform on board the Internet) is a non-delivery trades: currencies are not traded actively, but there are currency contracts that are agreed upon and implemented. Both parties to such contracts (the trader and the trading platform) undertake to fulfill their obligations: one side undertakes to sell the amount specified, and undertakes other to buy it. As mentioned, more than 95% of the market activity for speculative purposes, so there is no intention on either side to perform the contract in effect (the physical delivery of currencies). Thus, the contract will be terminated for compensation against the opposite position, resulting in the profit and loss for the parties concerned.

Components of a Forex deal

A Forex deal is a contract agreed upon between the trader and the market- maker (i.e. the Trading Platform). The contract is comprised of the following components: •  The currency pairs (which currency to buy; which currency to sell) •  The principal amount (or "face", or "nominal": the amount of currency involved in the deal) •  The rate (the agreed exchange rate between the two currencies). Time frame is also a factor in some deals, but this chapter focuses on Day- Trading (similar to “Spot” or “Current Time” trading), in which deals have a lifespan of no more than a single full day.  Thus, time frame does not play into the equation.  Note, however, that deals can be renewed (“rolled-over”) to the next day for a limited period of time. The Forex deal, in this context, is therefore an obligation to buy and sell a specified amount of a particular pair of currencies at a pre-determined exchange rate. Forex trading is always done in currency pairs. For example, imagine that the exchange rate of EUR/USD (euros to US dollars) on a certain day is 1.1999 (this number is also referred to as a “spot rate”, or just “rate”, for short). If     an investor had bought 1,000 euros on that date, he would have paid 1,199.00 US dollars. If one year later, the Forex rate was 1.2222, the value of the euro has increased in relation to the US dollar. The investor could now sell the 1,000 euros in order to receive 1222.00 US dollars. The investor would then have USD 23.00 more than when he started a year earlier. However, to know if the investor made a good investment, one needs to compare this investment option to alternative investments. At the very minimum, the return on investment (ROI) should be compared to the return on a “risk-free” investment. Long-term US government bonds are considered to be a risk-free investment since there is virtually no chance of default - i.e. the US government is not likely to go bankrupt, or be unable or unwilling to pay its debts. Trade only when you expect the currency you are buying to increase in value relative to the currency you are selling. If the currency you are buying does increase in value, you must sell back that currency in order to lock in the profit. An open trade (also called an “open position”) is one in which a trader has bought or sold a particular currency pair, and has not yet sold or bought back the equivalent amount to complete the deal. It is estimated that around 95% of the FX market is speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency.

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starting forex now !!

 

The market

The currency trading (foreign exchange, Forex, FX) market is the biggest and fastest growing market on earth. Its daily turnover is more than 2.5 trillion

dollars. The participants in this market are central and commercial banks, corporations, institutional investors, hedge funds, and private individuals like

you.

What happens in the market?

Markets are places where goods are traded, and the same goes with Forex. In

Forex markets, the “goods” are the currencies of various countries (as well as gold and silver). For example, you might buy euro with US dollars, or you

might sell Japanese Yen for Canadian dollars. It’s as basic as trading one

currency for another.

Of course, you don’t have to purchase or sell actual, physical currency: you trade and work with your own base currency, and deal with any currency pair

you wish to.

“Leverage” is the Forex advantage

The ratio of investment to actual value is called “leverage”. Using a $1,000 to

buy a Forex contract with a $100,000 value is “leveraging” at a 1:100 ratio. The $1,000 is all you invest and all you risk, but the gains you can make may

be many times greater.

How does one profit in the Forex market?

Obviously, buy low and sell high! The profit potential comes from the

fluctuations (changes) in the currency exchange market. Unlike the stock market, where share are purchased, Forex trading does not require physical purchase of the currencies, but rather involves contracts for amount and

exchange rate of currency pairs.

The advantageous thing about the Forex market is that regular daily fluctuations – in the regular currency exchange markets, often around 1% - are

How risky is Forex trading?

You cannot lose more than your initial investment (also called your “margin”).The profit you may make is unlimited, but you can never lose more than the margin. You are strongly advised to never risk more than you can afford to

lose.

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