- Two important concepts that forex traders need to understand when they are opening a new forex account include leverage and margin. The two very correlated and can affect how fast you make or lose money in the forex markets but what do they mean?
- Leverage in the most basic sense means borrowed cash. The use of leverage in forex trading is considered to be a double edged sword because when you gain profits, it can magnify your profits but when you lose; your losses are also magnified substantially. However, using a high degree of leverage in forex trading is almost normal with many brokerage firms despite it being risky.
- Margin on the other hand in forex is the amount of money that you need uncommitted in your account in order to open and maintain a certain trade. Each position has a certain margin requirement that you need and that is often given in a percentage if you are trading on borrowed funds (leverage).
Can you trade forex without a margin?
- As an example, let’s say that the margin factor is 0.5% in order to take a trade on a certain pair; in that case you would need 0.5% of the total value of that trade as a ready deposit in your account before you can execute the trade. In order to buy £10,000 worth of GBPUSD at a market price of 1.2250, the whole value of that trade is supposed to be $12250. With a margin requirement of 0.5%, it means that you would not need the full $12250 at once but instead, all you need is $61.25.
- Your broker would request for more margin if your position decreases by $61.25. The leverage level allowed will on the other hand determine how soon the broker asks for that extra margin.
- Trading without margin gives you an extra skin when it comes to unexpected losses. What happens if you open a trade on forex without margin? If you wanted to open a position without margin, you would need the full $12250 to hold the same position.
Invest in forex without leverage
- In some sense, you can look at margin trading in a similar way to being able to buy a house on a mortgage and not needing to pay the full value of the house in one go. To minimize the trouble of paying more through commissions and broker charges, many people prefer to invest in forex without leverage or margin.
Forex trading without leverage – Why it is better?
- Have you ever wondered why someone would want to carry out forex trading without leverage? Some of the perks of avoiding leveraged accounts include:
- Since there are no funds borrowed to trade with, there are no daily costs incurred as interests on debt exposure which are usually paid daily to the brokers. Traders who trade on margin or leverage usually get a substantial percentage of their profits lost especially if they hold the position for a prolonged spell.
- Less risk of wiping out your account due to over-borrowing or over-leveraging.
- A trader will focus more on developing a good trading system instead of focusing on making more money by borrowing more.
- Successful trades directly grow your bottom line in a stable way. There is less risk exposure on forex trading if you have less or no leverage. Many people will prefer a smaller average monthly profit than risk losing their account in the hopes of winning big when the trades are successful.
- Trading forex without leverage is very well recommended especially when you are using a service that trades on your behalf. One great service you must have a look at is Rofx.net as the service does not use borrowed money (leverage) in order to make profits for you. This especially means that even as the service guarantees high profits (an average of 0.38% daily), you are comfortable knowing that most of the profit generated from your capital is actually coming back to you and not going to a chain of brokers.
- One exclusive benefit you can get from Rofx service if you wish to invest in a service that does not need the use of margin or leverage is that it is a fully hands-free means of investing. Now, you do not only get a chance to invest in a service where a lot of profit is not channeled to expenses but you also do not need to learn forex, understand financial terminologies. You do not even need to monitor all trades on your own. The Rofx platform is a “drop in your investment and pick your profits” kind of opportunity.
- With the combination of all the benefits of leverage-free trading, Rofx also offers a loss coverage benefit that enables you to only enjoy profits and never get any losses in your account, regardless of the trading conditions. The loss coverage works by using funds owned by the service itself to replenish your account if there ever is a negative reading registered on your accounting any single trading day. No other service redefines guaranteed profits and no-margin-trading as good as Rofx does.