As we mentioned above, trading on margin gives you morebuying power and the potential for more profits (and losses). How does thiswork, exactly? A 1% margin account allows you to control a currency lot of$100,000 for $1,000. When dealing with $100,000 small changes in the price ofthe currency can result in large profits or losses.
FOREX currencies are traded in much smaller units than cash.The American dollar, for example, is traded in units down to 4 decimal places.Instead of $1.32 FOREX quotes are seen as $1.3256. The smallest unit in FOREXcurrencies is called the pip, and when you have a $100,000 each pip of yourtotal lot is worth $10 (when trading American dollars).
If the price of American dollars changes from 1.3256 to1.3356, that's a difference of 100 pips which represents a profit or loss of$1000. Without margin, if you had $1000 of currency, the price change from1.3256 to 1.3356 represents a difference of $10. Significant to the tourist,perhaps, but not the investor.
So the benefit of margin is increased profit potential.
FOREX currencies are traded in much smaller units than cash.The American dollar, for example, is traded in units down to 4 decimal places.Instead of $1.32 FOREX quotes are seen as $1.3256. The smallest unit in FOREXcurrencies is called the pip, and when you have a $100,000 each pip of yourtotal lot is worth $10 (when trading American dollars).
If the price of American dollars changes from 1.3256 to1.3356, that's a difference of 100 pips which represents a profit or loss of$1000. Without margin, if you had $1000 of currency, the price change from1.3256 to 1.3356 represents a difference of $10. Significant to the tourist,perhaps, but not the investor.
So the benefit of margin is increased profit potential.
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