Sources of Forex Trading Capital
How are we able to invest enough money in such a big-time investment scheme as a forex trading investment? Money that is worth investing in forex trading is partly sourced through the so-called leverage.
In forex trading, the investor enters in a trading agreement with a forex broker. The agreement includes signing up a margin statement provided that says the investor will have to borrow money from the forex broker before being able to do any trading. This borrowed money is the leverage that forex brokers make available for forex trading investors.
Leverage in forex trading is very important if we are to make any profit. Bear in mind that profits or price deviations in forex trading are quite minimal---a mere portion or tiny proportion of a cent. Thus, to make big profits one has to invest huge amounts of money in forex trading. To make this clearer, let's take this exaggerated example. If per $100 invested we get .01 cents as profits, how much do we have to invest to make at least a $100 profit? We need 1 million dollars.
So, if we're lucky enough, by investing 1 million dollars we might make a profit of $100. But the fact is we only have an actual capital of $100. Where are we going to get the $999,900? We enter an agreement with a forex trading broker. The broker lends us the total capital of $999,900, on one condition: the broker decides everything while we just wait and see what happens. We may or may not get the $100 profit we wanted to have. We may even lose everything.
In reality, some forex trading brokers are willing to give us a leverage ratio of $100 for every $1 we invest. Some are willing to lend even $250 for every $1 we invest. There are 3 kinds of forex trading accounts to deal with forex brokers. A mini account requires at least a $300 actual capital. So if we have a mini account of $300 actual capital, the broker, in a 100:1 leverage proportion, will lend us $30,000. The thing here is to choose a low leverage so the risks will also be low. Another kind is the standard account with a minimum required capital of $2,000. Then there's also the premium account with a higher capital requirement.
Forex Trading leverages are necessary tools in forex investment to make one's trading competitive and relevant. Forex brokers offer leverages at various ratios.