Is A Forex Trading Platform Offered By Brokers And How Important Is It?
Trading platform is the tool that connects the trader to the market and all brokers offer it. The key elements of most good trading platforms are analysis tools for technical and fundamental uses. The platform should be easy to use and navigate, and it must also provide ease of entry and exit. The sell and buy buttons must be clearly marked. Some platforms offer a “panic button” which closes all current open positions. If the trading platform is not well designed, it could lead to losses on the trader’s part because of interface issues. Bad trading platforms lead to bad trading choices.
The industry standard for trading platforms is MT4 or MetaTrader 4. It was introduced in 2005 and has since been the choice of most successful traders. It is easily customizable and proprietary trading platforms usually fail to compete with it. There are automated trading facilities with this platform and trading signals are also provided. If the trader has basic understanding of MQL, they can write a few scripts on MT4 themselves. In fact, MT5, which is the advanced version of MT4, is preferred by only a few traders because MT4 is so complete in every sense. However, one negative of MT4 is that it is only designed to work on Windows PCs. Macs and tablets cannot use it. A mobile version of MT4 is available, though.
Other popular platforms include Oanda FXTrade, eToro OpenBook, FXCM Trading Station, and SaxoTrader. Experts always suggest learning how to trade on MT4 because of its various utilities and tools.
What Is The Maximum Leverage And Margin Offered By Forex Brokers?
In U.S, the maximum leverage that brokers can offer is 50:1. The meaning of this is that for every dollar that the trader puts in, $50 can be traded. A higher leverage automatically means that there is a higher opportunity of making profits. However, because Forex market is volatile, there is an equally high possibility of incurring losses. Leverage and margin are closely linked to each other.
Margin is the collateral to an account. In simple terms, it is like a loan that a broker extends to traders and this account would be settled by the Forex broker daily. Assuming that margin on an account is $1,000 and leverage is 50:1, maximum amount of currency positions that can be opened is $50,000 (50 x $1,000). The collateral to this margin loan are the securities in the trader’s account. In case a position makes losses and the margin is extinguished, the trader has to either sell some securities or deposit cash. Margin is basically money belonging to the broker. In case of standard accounts with $100,000 lots, margin is between 1% and 2%, i.e. $1,000. A margin call is made when the losses of the trader approach this amount. This call is made to reduce the risk faced by both parties in case the situation becomes worse.
Without leverage (and margin) the profits of traders would be extremely limited. Instead of $50,000 (as in the above example), traders would only have $1,000 to trade. This would reduce their possible profits by 50 times. The number is kept so low because in case of bad market conditions or lack of trading experience, the losses would also be limited to 50 times.
11. What Is The Minimum Deposit Charged By Brokers On Forex Accounts? – Minimum deposits vary with different accounts and brokers. There are brokers who allow traders to trade with as little as $100 – $250 minimum deposit. ECN brokers, on the other hand, might require a minimum deposit that goes in to four figures. The concept of deposit is that the more money a trader has, greater the profits would be.
- In case of Standard account, only professional traders trade. The standard lot size is 100,000, which is why the minimum deposit is $10,000, in most cases.
- However, some brokers might offer a deposit of about $3,000 or $1,000. Because there is leverage in play, the actual buying power of the trader is a lot higher than just the deposit.
- For Mini accounts and Micro accounts, the trading lots are 10,000 and 1,000 units respectively. Since these are ideal for new traders who either don’t have a lot of money to trade or want to test the waters before they start trading full time, the deposit is also pretty low.
- There are lots of brokers who offer a minimum deposit of as low as $5 on Mini and $250 on Micro accounts.
In case of Managed accounts, there are pooled accounts and individual accounts for traders who don’t want to make any buying or selling decisions about their trades. For pooled accounts, the minimum deposit usually starts at $2,000. For individual accounts, on the other hand, the minimum deposit is $10,000. Apart from this, an account maintenance commission is also charged by the broker.
How Is The Exchange Rate Calculated With Forex Brokers?
An exchange rate is the price of one currency in terms of another currency. For instance, in order to buy $1, INR 61.83 needs to be paid. In order to trade, one currency is exchanged for another. If GBP is bought using USD, the exchange rate would be GBP/USD. All throughout the week, the currencies are traded which makes exchange rates change direction.
An exchange rate is usually expressed as GBP/USD = 1.56. This means that $1.56 is needed to buy Ł1. This can also be used for finding how much GBP is needed for buying $1 by simply flipping the currency rate. 1/1.56 would be Ł0.64.
Traders get a different market price than individuals. If a person goes to a bank and wishes to buy USD in exchange for GBP, the price would be marked up by a certain percentage. It would not be the same as the market exchange rate. It is simple to calculate that markup. The exchange rate offered by the bank is reduced from the market exchange rate and divided with the market exchange rate. Then it is multiplied by 100 to get the percent markup. This markup is basically currency exchange and banks compensating themselves for the services they are providing – it is their profit.
Calculating requirements on the basis of currency exchange rates is pretty simple as well. If the broker is offering a rate of 1.5 for GBP/USD and the trader needs to know how much GBP $1000 would provide, they simply need to divide 1000/1.5 = Ł666.67.