Forex Trading – Any Capital Can Run Out
https://ebanmella.com – writing Question Foreign currency (forex) This is a continuation of my previous post on this topic. “Anti-Loss” Forex Trading Strategy for Beginners.
Apart from this, this article also answers questions that arise when you want to trade forex, such as “What is the right or minimum capital?” Shopping forex?”
Just like buying shares, do Shopping Forex you need to prepare minimum capital. What is the amount of capital?
For stocks, the Indonesia Stock Exchange (BEI) has decided that investors can buy at least 1 lot or 100 shares of this instrument. So, we can say that the minimum estimated share price is IDR 50, the minimum capital is IDR 50 x 100 shares. This means, we need IDR 5,000 as the minimum capital.
Also when you want to invest in mutual funds. Many requirements to buy mutual funds are IDR 50,000 when you find out from the platform or investment manager that this is the minimum value.
In fact, the same applies to Forex tools. Unfortunately, when we apply the concept of minimum value to forex, we often get it wrong.
For example, when opening a forex account on Octa.id, there is a requirement that you start with 100 USD. However, this name is not the minimum capital used to start a business.
Please note, if the analogy is opening a savings account in a bank, this nominal value is more suitable. Is there a minimum deposit? If so, does each bank have a different minimum deposit?
If you open a business or business and open a bank account, is the capital to open your business or enterprise equal to opening your minimum bank deposit?
This is the key to understanding it. The minimum opening on a forex broker – which is still at 100 USD on Octa.id – has nothing to do with the minimum capital for your forex trading business.
OCTA document Example of forex trading activities.
So the actual capital required for your business or organization is not related to the deposit capital to open a bank account for your business.
At this point I hope we both understand the difference between your trading capital and your account opening capital.
Let’s continue the section “Any amount of capital can be exhausted in forex”. What does this saying actually mean?
Read More : Which is more profitable for Forex trading or my business?
Don’t think first. Think about it, do you know the driving principle?
Even if one has never done it, the principle of punting is not difficult to understand.
First, the item you wish to pawn is evaluated by the pawn shop. For example, we use 100 grams of gold. So, we hand over the gold, and then we take the money home.
Then it gives you 100 percent of the value of 100 grams of gold? Definitely not. If it is 100 percent, you are selling gold, not buying gold. Makes sense, right?
A pawn shop will appraise your gold or goods at 80-90 percent of its value. This means that your maximum ceiling is equal to 90 percent of the value of 100 grams of gold at that time.
Then you take the money home from the pawnshop. The gold was left in the pawn shop.
Later, you only have to pay 90 percent of the loan payments for the money you bring home. Interest and gold deposit charges may be charged on that value.
Simple question, what if you don’t return the money on time? Your gold is sold at the pawnshop to cover your loan.
Therefore, if there are certain conditions, the pawn shop will also be adjusted. For example, when it is borrowed and not yet matured, the price of gold has fallen by 10% since you received the money, the shopkeeper will contact you to raise money.
Why is that?
Basically, a pawn shop offers the difference or distance between the market value and the value of the collateral you own. If you don’t keep your gold in this type of place, it will be sold.
Because, the pawn shop thinks there is a risk of loss. Let’s create a simple formula for readers who are starting to feel that this article is too complicated.
When the price of gold falls, then you add collateral to the loan or deposits, then the value is the same as the current market price.
So when can we be sure that our gold will not be sold in a consignment shop? The answer is by paying off the loan.
Read More : Understanding Forex Trading and the Difference from Stocks
As long as your gold is still in the pawnshop and the loan term is still there, there will be adjustments that you have to calculate as risk during that period.
OCTA document An example of a person reading a forex movement chart
Switch to Shopping In Forex, people think that $100 capital is relatively small because there are still trades that require $10,000 or $1 million in capital.
As in the example above, when you go to the pawnshop to loot gold, you will be given a maximum ceiling of 90 percent.
This means, if you need 100 grams of gold and pack your gold at the same time, that means if 90 percent is capitalized by the pawnshop, 10 percent is your own capital set aside for your financial needs.
By comparison, your capital requirement is 1:10 of 100%.
In forex trading, brokers offer flexibility on your personal capital along with loan amount. In short, as a pawn shop they are ready to lend money, it can be 1:100, 1:500, 1:50, or 1:10.
If we choose 1:100 and you want to buy gold in USD (XAU/USD) in 1 lot or 1,800 USD in gold price per troy ounce, this means you need to prepare 180,000 USD in funds.
Since the capital is 1:100, the prepared money is only one percent of 180,000 US dollars. So your starting capital is $1,800, not $100.
After that, “OK, 1,800 USD for buying 1 lot of gold!”
Don’t forget, the thrift store asks you to deposit more when the price goes down, right? Because you buy 1 lot of gold, it means that the world gold will decrease for 1 dollar, which should be prepared by 100 dollars.
So, if your capital is $10,000, there is a $1 discount on world gold, and you will be asked to put back $100 in capital.
Then if world gold falls to 100 US dollars, your capital of 10,000 US dollars will be meaningless.
Additionally, the $10,000 starting capital is deducted from the $1,800 purchase cost.
This means your remaining capital is only US$8,200. This means that if world gold falls to 82 USD, your capital is gone!
Want to try another idea to say that any amount of money can be lost in forex?
You put in a huge capital of 10 million US dollars. Then, you buy 1,100 or 1.8 million USD capital option 1,000 lots of XAU/USD.
This means your remaining capital is $8.2 million. If world gold falls by 1 US dollar, you need 100 US dollars more capital for 1 lot. So, if it’s 1,000 lots, you need an additional capital of US$100,000.
This means that whether you want a small or large capital, you can get money It’s over…bass…!
The bad news is, 2020 is one of the years with the most daily gold moves. The price fluctuates from a high point to a low point of 82 USD in 1 day.
Looking at the following information, I am sure that few people in forex will not happen.
OCTA document The table contains forex activity data. Data compiled from Investing.com’s daily rate of XAU/USD from high to low (September 2008 to June 2021)
So, which capital is correct? Shopping forex? The answer is how much you want to trade. So how prepared are you to catch the market when the price moves higher than you planned?
Note: Trading Contracts for Difference (CFD) with leverage can bring high profits, but it can also cause you to lose money. Please consider the risks.
