Forex account balance margin balance
Before dipping into currencies, make sure you clearly understand the difference between account balance and account equity.
Your forex trading begins with a new account funded by "risk capital" -- i. Online trading platforms -- and there are many -- allow transfer of funds directly from your bank account. You can also send a check or money order through the snail mail. The amount of free cash in the account is the balance.
Forex accounts hold no stocks, bonds or other securities. They consist of nothing more than open positions, and an available cash balance that will adjust when you add more funds or close a position. When you trade currencies, you participate in a global spot market in which banks, governments, professional traders and international companies are constantly opening and closing positions. A forex position pits one currency against another.
A contract represents , units of the first or "base" currency. To open up the market a bit, forex brokers allow their traders to use margin -- money that is loaned from the broker -- to open their positions. An account with a To open up the market a bit, forex brokers allow their traders to use margin -- money that is loaned from the broker -- to open their positions.
An account with a As cash is committed to open positions, and as these positions fluctuate in value, the equity in the account will rise and fall. Equity is the current value of the account and fluctuates with every tick and blip on the trading screen. The account equity consists of the cash balance plus the value positive or negative of open positions.
As the contracts rise or fall in value, so does the account's total equity. If a trader's open positions lose serious value, his equity may fall below a "margin maintenance level. A typical margin level may be 10 percent of the opening balance. A contract or combination of contracts losing 91 percent of the balance, for example, will trigger a margin call or position closing by the broker.
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