Could you please explain this bit of the fxcm.com interface to me?

Hello, newbie here, brand new to Forex and the fxcm interface.

I’m working the the demo account, and am a bit confused on the workings of the user interface in regard to opening up a new position.

When I open a position, from the buy button, one of the inputs is the amount.

When I have a single position open with a value of 10 (k), the used margin is listed as 100.00.

Does this mean that leveraging is being applied? If I were to open a real account I would be looking to trade without leveraging (1:1) since I am very new to all this. Would this be an option?

Also would 10k be the minium position that I could open if I opened a standard account with $2000, as this would be the amount that I am looking to start with?

Thanks in advance.

i’ll answer half of your question(s).

yes, leverage will always be applied, at least technically. but realistically, if you have a $2k balance and you open a trade with a 1k position, then effectively you are NOT leveraged. but in the background, the broker will only set aside maybe $10 of your balance and leverage it up to that 1k position. worry more about the EFFECTIVE leverage (position size versus account balance) than the internal stuff.

if you go live, then if you have a $2k balance then just open a position of 2k and don’t worry about what margin is being used. then, you’ll have effectively no leverage (except whatever the exchange rate is). for example, you have a $2k USD balance and want to trade the EURUSD which is trading at around 1.30, and the position size is going to be in EUR, so $2k USD is going to be 1538 Eur position size. you can if you want enter the position as 1538 (if you can indicate it in individual units), or 1.5k, or 1k, or 2k. with my broker and my platform, the lowest I can do is a 1k position, in increments of 1k, so if I had a $2k balance and wanted to trade with zero effective leverage, i’d have to go with a 1k position (or fudge it and go with a 2k position which would be only slightly leveraged).

Hi Trader468768,

Welcome to the forum :slight_smile:

What SoundOfLight said about effective leverage is spot on. What you’re interested in is the effective leverage. If you deposit $2000 into your trading account, and your total trades are 2k, then your effective leverage is 1:1. That’s because your $2000 is controlling 2000 currency units in the market. If you had a 4k position open in the market with $2000 deposited in your account, then your effective leverage would be 2:1. If you controled 20k with $2000, then you effective leverage would be 10:1. That means if you want to trade a 10k position on 1:1 leverage, you would need to deposit $10,000.

On your demo account, you can practice by not exceeding 2k open total, so you can get used to the changes in your equity. Also, if you have any other questions about the FXCM Trading Station, feel free to hit me up in the Broker Aid Station.

Jason

SoundOfLight, Jason

Thank you both for your answers, I’m confident I understand now. Also, I’ve since read that FXCM won’t let you go in to debt with the broker, which gives me some confidence that I won’t get my self into too much trouble!

Also with regard to minimum position, it looks like FXCM will let you open a 1k position. I had assumed 10k was the minimum because I have also been playing with Barclays FX Web, which is obviously a reskinned version of FXCM. Barclays appear to require a minimum 10k position.

Hi Trader468768, (Can I call you Trader46876 for short? ;))

You are correct, FXCM has a No Debit Balance Policy, so even though you can trade with leverage to magnify your gains and losses, your total losses are limited to the money in your trading account.

You’re off to a bright start with your learning by already thinking about limiting your leverage. This is something our trading instructors at DailyFX.com emphasize. Below is an excerpt from an article on How to Determine Effective Leverage by one of our trading instructors:

Jason

Not one of my catchier user name I agree ;), Mr 468768 will do fine!

If you don’t mind I have another question regarding the currency that positions are opened using. Please let me know if I should start a new thread for it…

When opening a position, I understand that the cost to me is the spread on the buy and sell rates.

E.g. to buy 1k USD using GBP, I buy at 1.53774, while the close sell value starts at 1.53750, meaning that I start out with a deficit of $0.24, which is my cost to open the position.

However, if I open a position buying GBP with EUR, does it not matter that my balance in FXCM is in dollars? Does that mean that I’m technically buying GBP with USD, to then buy EUR?

Nothing in the user interface suggests that this is the case, but I’m interested to know if there is anything going on in the background, or if there is any additional cost to me.

Thanks again.

Mr 468768,

When you are trading currency pairs, something to keep in mind is that you are not physically exchanging one currency for another. If your trading account is denominated in US Dollars. The money in that account will always be denominated in US Dollars. You will never physically exchange those US Dollars for another currency, no matter what currency pair you trade.

When you place a currency trade, you are speculating on the direction of the exchange rate. If you think the British Pound will rise in value relative to the Euro, then you can sell the EUR/GBP currency pair. You will then make money if the rate goes down, but lose if the rate goes up. If you think the British Pound will fall in value relative to the Euro, then you can buy EUR/GBP. You will then make money if the rate goes up, but lose if it goes down. It doesn’t matter that your account is denominated in US Dollars.

It might help if you to look at the Simple Dealing Rates tab on your FXCM Trading Station demo account. Below is a screenshot from a US Dollar-denominated account. That means Pip Cost and MMR (Minimum Margin Requirement) are shown in US Dollars. You are not being charged an additional cost for your Pip Cost to be calculated in US Dollars.

Notice that the Pip Cost for EUR/GBP is 0.15 USD or 15 cents. That means if you have a EUR/GBP trade open in your account, then every pip you make or lose on the trade will be worth 15 cents on a 1k microlot trade, which is the minimum trade size. Note, that the Pip Cost shown is rounded to two decimal places to save space. The actual amount you would make or lose is 15.2560 cents because the GBP/USD exchange rate is 1.52560 at the time in question. As the GBP/USD exchange rate changes the Pip Cost is updated automatically in real-time.

Jason

Thank you again for a detailed reply. Crystal clear.

While I am glad you have had your question answered, I always recommend traders to address broker specific questions directly to the brokers live support as it would get your question answered right away. That is what the broker’s support is there for.