I am currently at the kindergarten version of the “school of pipsiology” so please do not yell at me for asking a dumb question.
From what I read you need to invest 1% margin of what you want to trade?
Does that mean If I put a down payment of $1,000 I can trade up to $100,000?
If this this is true, could someone briefly explain to me how you could “borrow” such a large lump without risking losing more than your initial investment?
Thank you very much for your support!
If price starts moving against you. Your broker will close your positions before you go negative in your account. Look up ‘margin call’
Hi Shai
What you are talking about is leverage of 100:1. There are changes to the allowed leverage depending on where your broker is. However, Just to set things a little , if you deposit $1000 then you would not risk more than 1-2% of that $1000 per trade ie. $10 this is refered to as money management. In this case if you had a 100:1 leverage you would control $1000.
My question is - i could potentially “borrow” 100x more than my initial deposit “technically” ?? without losing my MORE than my initial deposit?
no, see margin call
Technically, that is correct but you run a very high risk of going broke which is why you shouldnt do this, this is the money management that others here are referring to.
Suppose you deposit $1,000 and get leverage of 100:1. (This is a 1% margin)
Your broker will then lend you another $99,000 to trade with, so you can trade with $100k - but the minute you lose $1,000 of that money your broker will instantly close out all your trades. This is called a margin call, it means that although you are trading with $100,000, you cannot lose more than the $1,000 you deposited.
The margin call answers are right, but there’s a little bit of “financial wizardry” going on too.
When you trade with your broker, you aren’t [I]really[/I] buying and selling hard currency. There are contracts that represent an [B]obligation[/B] to exchange X units of currency A, for X units of currency B in the future. And since everyone buying and selling these contracts are all bound by this obligation to exchange the currencies back at some point in the future, the only thing that has any significance is the Profit/Loss distribution between the buyer and the seller.
Therefore the only real money moving around are the profits and losses and these are generally small percentages of the contract size. So even though it seems like we’re borrowing the other 99% of the contract, it’s really just an illusion created by the wizardry 
All you need to worry about is that if you trade $1 per pip or 0.1 lots (however your broker represents it) and the currency goes down by 10 PIPS you will loose $10, if it goes up by 10 PIPS you will gain $10.
Simple as that, for trading purposes that’s all you need to know, and the cost of the spread of course, so with a 1 PIP spread you would loose another $1.
Don’t worry, we’re not gonna yell at you!!!
And also, it’s not “quesotion” OK!!!
Lol, only kidding.
Thanks for the explanation guys, I learn just by reading the thread. I am also a newbie and is getting some knowledge here. Thanks again.
I appreciate this explanation, I was wondering if someone could elaborate on it because as you can see from previous posts people have said the exact opposite.
both the explanations are technically correct.
theoritically you are borrowing 99% of the position size from your broker hence the reason you can trade such a large position size
although in reality as akaekamai stated the brokers actually deal in contracts as opposed to hard currency.
you open up a position using 1k and your broker will issue you with a contract 100x larger than your actual funds, when you close this position your broker is basically buying back the contract and paying you the difference.
hope this makes more sense
lee
yes this does make sense, thank you Lee.
I also gained a better understanding of what “LEVERAGE” is. which explains the whole concept of how the 100:1 actually works.
The link to that definition/explanation is here:
Leverage: Forex Currency Trading Leverage Defined
ps- do people ever use the live chat?
i think the chat room is pretty much useless.
I was going to answer but realised your question has already been answered here. You have a lot of reading and learning to do my friend.