Understand the Importance of the Forex Margin Before You Trade Forex

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Forex margin denotes the amount of money in your trading account that is available for you to trade. This amount basically depends upon the amount of equity in your account. From the total amount of equity in your account if you subtract the amount of margin already used, the balance represents margin amount available for use to trade forex.

Standard accounts, mini accounts and micro accounts are the three types of forex accounts that traders normally use. Micro accounts allow forex traders to trade in the smallest of lot sizes that generally is 1000 units of the base currency. In the mini account, trades can be undertaken in lot sizes of 10,000 units of the base currency. In the standard forex account, trades happen in 100,000 units of the base currency. Standard account is most the popular account used by professional forex traders.

At any point of time if the equity in your account falls below the amount of forex margin used, then your broker will initiate a margin call. The call is made to recover the drop in your equity value. To give an example, if you have $20,000 in your account, your usable margin will be $20,000.00. If you buy lots worth $14,000, the remaining usable margin will be $6000 in your forex account. In case the value of your investments falls by a few pips causing the equity value to drop down from $20000 to $ 14000, your broker will trigger a margin call. Effectively this will result in you losing $6000 of your investment capital.

Forex market is ever changing with frequent currency price fluctuations. Margins can get eroded in no time unless you trade cautiously. One of the key aspects of forex trading therefore is to manage your forex margin effectively. Skilled technical analysis and money management strategies will help you minimize your losses to a very large extent. In addition abstain from committing mistakes like overtrading which can at times erode your entire margin amount. Also keep a close track of your trading account balance. Unless you are aware of when your account runs into margin call, you will have no idea on when to cut your losses.

Forex market trading is no longer the domain of large institutions alone. Ordinary people like you and me can easily learn the basics of forex trading education and start trading profitably in the market.