Rapid Forex e-Course Day 10
Week 1
Rapid Forex e-Course Day 10
asimon
03-31-2006, 8:57 PM
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"The Rapid Forex e-Course"
--> a 20-part mini-course series
Published by:
Abundant Freedom, LLC
http://RapidForex.com
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To DOWNLOAD the "Insight Trader Package":
follow the instructions on the page below:
http://rapidforex.com/dlInsightV100.shtml
To See the e-Course Table of Contents:
http://rapidforex.com/ecourse.shtml
LESSON #10:
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Account Size, Lots, Margins, and the Allure
of 200:1 Leverage:
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As you first learned in Lesson #2, no other market in
the world allows the LEVERAGE that the exciting world of
currency-trading does.
====================================
Sidenote: LEVERAGE refers to margin
trading. In the FOREX market, it is
essentially the ratio of the amount
used in a trade to the required
security deposit needed, by the
broker, for that trade.
====================================
Normally, for most brokerages (at least the ones we
recommend), a margin deposit of just $1,000 allows you to
control a $100,000 position in the FOREX market. That's
100:1 leverage, or 1%. Or, said another way, a *regular
full-sized account* -- sometimes referred to as a 100k
account -- allows you to trade with lot sizes equal to
$100,000. Each lot is worth $100,000 in currency. It will
only_require_$1,000 to trade one lot (aka, "contract")
Think about this for a moment (it is what makes this market
the hottest market ever to trade in): The FX broker has
loaned you $99,000 dollars secured only_by_your $1,000. This
is HUGE and, as you know by now, is what allows traders to
make extraordinary incomes in this market. And, as you also
are probably used to hearing - "leverage is two-edged sword"
- it is what can cause you to lose a lot of money if you
trade without rules or Stop-loss orders.
But, for argument's sake (and to keep the continued tone of
this course on encouraging you to become a FOREX trader),
let's just say you WERE the person to trade with reckless
abandon -- with no common sense, no strategy, no money-
management principles, etc. While we don't recommend that
... still, consider this:
Unlike Futures (Commodity Trading), the market that most
people associate with HIGH leverage, you can never have a
debit balance when trading FOREX! This means that you can't
lose more money than you have in your account. In Futures
trading, you could lose everything you own if a trade goes
wrong.
So, despite the greater leverage associated with FX trading,
it's still arguably less risky than futures trading. Futures
markets are often prone to sudden and dramatic moves,
against which you can't protect yourself, even by trading
with protective stops. Your position may be liquidated at a
loss, and you'll be liable for any resulting deficit in the
account. But because of the FX market's deep liquidity and
24-hour, continuous trading, dangerous trading gaps and
limit moves are eliminated. Orders are executed quickly,
without slippage or partial fills.
And finally, there are no margin calls -- for your
protection, the FX broker's trading platform will
automatically close out some or all of your open positions
if your account equity -- meaning the total floating value
of the account -- falls below the level required to hold the
positions. Think of this as a final, automatic stop, always
working on your behalf to prevent a debit balance.
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A Quick NOTE about Margin:
=============================
Besides being generous with their margin requirements
(LEVERAGE), FX brokers also are very flexible with you. In
other words, you are able to select the degree of leverage,
or "gearing" as they call it, that you feel works best for
you. The default margin for most brokers is set at 1% (and,
of course, most traders prefer the lowest possible margin
requirement), but if you prefer to trade with less leverage,
some brokers allow you to trade with a 2% margin.
For instance, if you start with a 2% margin, then it will
cost you $2000 to place a one-lot trade on a 100K (full)
account. Your leverage is now 50:1 versus 100:1. As
discussed in Lesson #3, currency moves in price-interest-
points (pips), and in a regular (100K) account, each pip is
worth about $8 to $10.
================================
Mini Lots vS. Full-sized Lots
and How to Achieve up to 200:1
Leverage:
================================
The Mini Account (explained more below) uses a different
leverage calculation than a regular (100k) account. Instead
of trading full-size currency lots (100,000 units), you'll
trade in lots that are just 1/10 the size (10,000 currency
units), which greatly reduces your risk. Pips in a Mini
Account are worth, on average, $1 instead of the $8 to $10
mentioned above. The Mini FX account offers up to 200:1
leverage -- just a $50 margin deposit allows you to trade
lots worth roughly $10,000 -- but the smaller lot sizes,
with correspondingly smaller pip values, means that you'll
be assuming less total risk. For example, while a 20-pip
loss on a 100,000 EUR/USD position would be $200, the same
loss on a 10,000 EUR/USD position in a Mini account would
amount to $20.
So, here's the OVERVIEW of LEVERAGE (Margin, Account Size)
on each of the two accounts discussed above:
100K (Regular Full-sized Account)
- Minimum required account deposit = $2,000
- Recommended required account deposit = $5,000 to $10,000
- Traded in 100,000-unit currency lots
- Default Margin: set at 1% ($1,000 per lot)
- Leverage = 100:1 or 50:1 (if margin is set at 2%)
MINI Account
- Minimum required account deposit = $300
- Recommended required account deposit = $2,000
- Traded in 10,000-unit currency lots
- Default Margin: set at 0.5% ($50 per mini-lot)
- Leverage = 200:1
=====================
Because there is no downside to trading a MINI Account
(i.e., you're still entitled to all the benefits that
full-size FX account holders enjoy - same state-of-the art
trading software, charts, resources, and tools, etc.), and
it is ideal for a new FOREX trader to develop a disciplined,
rational Forex trading strategy without excessively focusing
on profits and losses (note: with less than $5,000 starting
capital, you can't be WRONG too many times when trading with
a regular account). . . we've developed an extensive
complimentary course on how to use a MINI account.
If you haven't already read "Forex Freedom", just follow
these instructions:
----------------------------------
To DOWNLOAD "Rapid Forex Freedom":
'Right-Click' on the link below,
and use the 'save as' command.
http://rapidforex.com/free.pdf
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START SMALL, BUILD UP CONFIDENCE !!
There is NO MAXIMUM trade volume on the Mini account.
Although the standard trade size is 10,000 units – you are
not limited to trading one lot! For instance, you can trade
10,000 units, 50,000 units or 150,000 units. This means as
you become more seasoned and build up confidence you can
slowly increase the size of your positions to maximize
profits (and losses). In fact the trade size of 10,000 units
allows for more flexibility in terms of customizing the size
of your trade. The ability to customize the size of the
trade enables better risk management.
DEVELOP YOUR TRADING SKILLS WITHOUT FOCUSING ON P&L !!
When trading 100,000 currency unit lots in a regular, full-
size account, if you have a relatively small balance, you
may tend to fixate on your equity fluctuations and sometimes
base trading decisions on emotional reactions to these
fluctuations. Many traders, for example, resist closing-out
unsuccessful trades at a loss, because they hope that the
market will turn in their favor. Conversely, many tend to
immediately take profits when the market moves in the
desired direction, rather than maximizing their gains by
allowing profits to run. With less capital at stake in a
Mini FX account, however, you can develop a disciplined
trading methodology -- as well as the confidence needed to
be a successful currency trader -- without the anxiety and
distractions that come with large P&L swings.
How to capitalize on these two advantages of the MINI account
is exactly what we teach you in "Forex Freedom" -- we hope
you enjoy it as much as Robert enjoyed writing it.
And, to learn all about our famous technical-trading courses,
just go here:
http://www.RapidForex.com
It is our goal to serve you with the best FOREX trading
content on the planet. We have been labeled "the premier go-
to website for value-packed, self-taught FOREX education &
training." If you're not into forking out hundreds, or even
thousands of dollars for seminars, DVD's and conference
calls, we think you'll thoroughly enjoy what we have to
offer.
Until tomorrow's lesson, just remember, "Life is Short, Eat
Desert First."
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Stay Tuned for tomorrow's email from us. It will have
the following Subject line:
asc, Lesson 11 - The Rapid Forex e-Course
The Fun Part: How to Open a DEMO-trading Account
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Health, Happiness & Prosperity,
Robert Borowski & Brian Campbell
Abundant Freedom, LLC
http://RapidForex.com
--------------------------
To DOWNLOAD the "Insight Trader Package":
follow the instructions on the page below:
http://rapidforex.com/dlInsightV100.shtml
Inside the "Insight Trader Package" you'll receive:
*Forex Freedom
*10% to 30% Monthly R.O.I.
To See the e-Course Table of Contents:
http://rapidforex.com/ecourse.shtml
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"The Rapid Forex e-Course" is published by:
Abundant Freedom LLC
Visit us at
http://RapidForex.com
This publication may be fre_ely redistributed if
copied in its entirety, as long as you do not claim
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Copyright (c) 2004-5 Abundant Freedom LLC.
The information in this e-Course is provided for
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offerred as-is, with no warranty of any kind. While
Abundant Freedom LLC, and the author of this e-Course
have taken reasonable measure to assure the accuracy
of this information, the information is not guaranteed
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without notice.
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