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Forex Trading, Any Capital Can Be Used

Forex Trading, Any Capital Can Be Used - Working with foreign exchange (Forex) is a continuation of my previous article entitled "Anti-Corruption" Forex Trading Strategy for Beginners. In addition, this article also answers the questions that often arise when you want to trade Forex, namely, "What is the correct or minimum capital to trade Forex?" As with buying stocks, you also need to set a minimum capital to trade Forex. How much is this capital worth? In terms of shares, the Indonesian Stock Exchange (IDX) has decided that investors can buy this instrument with at least 1 lot or 100 shares.

Thus, with an estimated minimum share price of 50 IDR per share, we can say that the minimum share capital is 50 IDR x 100 shares. This means we need a minimum capital of Rs 5,000. Likewise when you want to invest in mutual funds. When you find out that the requirement to buy a mutual fund is IDR 50,000 from an investment platform or manager, that is the minimum amount. In fact, it is the same with forex instruments. 

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Unfortunately, we often get it wrong when we apply the concept of minimum cost to Forex. For example, opening a forex account on Octa.id requires starting with $ 100. However, this nominal amount is not the minimum capital to be used when you want to start trading.

Note that denomination is more appropriate when measured, as if we were opening a savings account with a bank. Is there a minimum deposit? If so, does each bank have a different minimum deposit? If you start a business or business and then open a bank account, do you need capital to open your business or business the same size as opening a minimum bank deposit? This is the key to understanding it. The minimum to open a forex broker - still with the Octa.id example - $ 100 - has nothing to do with the minimum capital for your Forex trading business.

Forex Trading, Any Capital Can Be Used

Hence, the actual capital required for your business or project is not related to the minimum capital invested to open a bank account for the business you will be running. I hope that by this point we have been able to distinguish between your trading capital and the capital for opening an account. Let's continue the section "Any capital can run out in Forex". 

Indeed, what does this statement mean? Don't assume yet. Think about it, have you ever known the principle of foreclosure? It is not difficult to understand the principle of foreclosure, even if no one has done it before. First, the pawnshop will evaluate the pledged item. For example, we put in 100 grams of gold. So we give the gold and then we take the money home. Then, will you receive 100 percent of the value of the previously produced 100 grams of gold? of course not. If it's 100 percent, your name is selling gold, not a mortgage. It makes sense, right?

The pawnshop will appreciate your gold or product 80-90 percent. That is, your cap is equal to 90% of the price of 100 grams of gold at that time. Then you take the money from the pawnshop home. The gold was left in the pawnshop. Later, you only pay the loan commission for 90 percent of the money you bring home. 

Interest and gold deposit fees may be charged from this value. A simple question, what if you don't return the money before maturity? Your gold will be sold by a pawnshop to cover the loan. Well, if there are certain circumstances, then the pawn space is established. For example, if you are engaged, but the due date has not yet expired, and the value of gold drops by 10 percent from the moment the money is received, the mortgage broker will call you to add money.

why? Basically, the pawnshop determines the difference or distance between the market price and the value of the collateral it holds. In such a situation, your gold will be sold if you do not make a deposit. Because the pawn place will think about the risk of losing. Let's put together a simple formula for readers who are starting to feel like this letter is too complicated. 

When the price of gold falls, you add collateral to a loan or deposit money that is worth the current market value. Then when can we be sure that our gold will not be sold in a pawnshop? The answer is to pay off the loan. As long as your gold is still pledged and the loan term is still ongoing, adjustments will also be made during that time, which you should consider as a risk.

Moving on to Forex trading, people think that $ 100 capital is relatively small because there are still businesses that require $ 10,000 or even $ 1 million in capital. When you go to the pawnshop to pawn gold, as in the example above, you are given a maximum of 90 percent. That is, if you are pawning gold at the same time, because you need cash equivalent to 100 grams of gold, then this means that 90 percent is capitalized by the pawnshop, and 10 percent is your own capital created for your financial needs. 

If you make a comparison, your equity is 1:10 of 100 percent of the funds required. In Forex trading, brokers provide flexibility to your personal capital with the size of the loan. In short, they are ready to lend money, like in a pawnshop, it can be 1: 100, it can be 1: 500, it can be 1:50, or it can be 1:10. If we choose 1: 100 and you want to buy XAU / USD for 1 lot or at a gold price of $ 1,800 per troy ounce, then you need to set $ 180,000.

Since the capital is 1: 100, the prepared funds are one hundredth of $ 180,000. So, your starting capital is not $ 100, but $ 1,800.". Since you are buying 1 lot of gold, every US dollar that falls in world gold means that you need to prepare 100 US dollars. So, if your capital is $ 10,000 and the world gold has dropped by $ 1, you will need to re-deposit your $ 100 capital. 

Then, if the world's gold falls to $ 100, the $ 10,000 that your capital used to be does not make sense. In addition, the principal amount of the initial $ 10,000 deposit was deducted from the $ 1,800 purchase fee. That is, your remaining capital is only $ 8,200. This means that if the world's gold drops to $ 82, your capital will be lost!

Do you want to try another fantasy to show that you can spend any money on Forex? You are depositing $ 10 million in big equity. After that, you buy 1000 lots of XAU / USD with a capital choice of 1: 100 or USD 1.8 million, which means that your remaining capital is USD 8.2 million. If world gold drops by $ 1, you will need an additional $ 100 capital per contract. Well, if it is 1000 lots, then you will need additional capital of $ 100,000. 

This means that no matter if you need a little or a lot of capital, money can run out ... a bus ....! Bad news: 2020 is one of the years with the most daily gold moves. Fluctuations can go as high as $ 82 from the highest point to the lowest in one day. Given the following data, I'm sure very few people go bankrupt in forex:

So what capital is right for Forex trading? The answer is the number of contracts you want to trade. Next, how willing are you to hold the market when price reverses beyond what you planned? Note. Leveraged CFDs can bring you high profits, but can also lead to loss of money. Please consider the risks.