Foreign-exchange (forex) trading consists of the buying and selling of world currencies, and its marketplace is among the most liquid in the world. The unique aspect of trading forex is that individual investors can compete with large hedge funds and banks - they just need to set up the right account. Capital Requirement Most brokers require standard accounts to have a starting minimum balance of at least $2,000 and sometimes $5,000 to $10,000. Loss Potential Just as you have the opportunity to gain $1,000 if a position moves with you, you could lose $1,000 in a 100-pip move against you. This loss could be devastating to an inexperienced trader with just the minimum in his account.
brain22. Welcome to ET. Forex seems to be an interesting place that many investors are flocking to in search of returns. With the onset of regulation here in the USA, there seems to be a noticable shift among seasoned traders. It is rather scarey to move money out of the USA into Foreign dealers around the world. Many countries align with the long arm of the CFTC and do not open accounts to USA residents. Max 50:1 leverage, no hedging, FIFO rules seems to be enough for some traders to take the leap and move some money far away from the USA into unregulated zones. Some dealers allow from $1.00-$500.00 minimums to open accounts and many different trading sizes with a varing degree of leverage available from 100:1 to 500:1 (there is one with 1000:1). How do some of you view high leverage? Is high leverage good or bad? Dealers that offer 500:1 ...are they irresponsible? ES
Leverage related to capital can use a rather controversial application if one really considers the possibilites honestly. Most traders gamble with leverage. But consider this valid point: You need less capital in your account at 500:1. This is what it is all about. Your yield is always based on your capital. If you trade the same way on a 50:1 account vs. a 500:1 account then which account would be better? Do you see the point? ES P. S. To further expound...since there is less money at risk and he gets a margin call...it's just to replenish the account. The net comparison to trading at 50:1 is the same. If he is a loser..he is still a loser...BUT if he has an edge more leverage is the way to go...Just look at the model Prop Shops offer for professional equity traders...they would not be able to extract money from the markets without leverage and fast tools. P.P.S. Drawing lines in the sand may be an unecessary evil.
Cori Mitchell wrote a good article for investopedia about capital requirements that fit this thread. Google it folks if you want to read up. For you folks that want to dabble in Forex. I have no advice other than to be careful. Losing money in trading is not all that you need to worry about. Some say if you are going out of the country with your trading accounts to diversify with several dealers. Your tax reporting responsibilities reamain as US citizens and I suggest you follow those reporting rules...but this is none of my business what you do....but the long arm of the US governement is growing longer and you will need to eventually worry about a one-world economy discovering where your money is. ES
With each pip being worth $10, if a position moves with you by 100 pips in one day, the gain will be $1,000. This type of gain is not possible with any other account type, unless more than one standard lot is traded. Spam