So i've set up a practice account on FXCM microtrading. I've spent about the last 4 hours trying to understand all the terms like leverage, margins, spread, pips. I've now got a pretty solid understanding of trading i think. As it stands on the practice account, they give you 5 K to work with, i'm managing to make about 25 dollars an hour ( a good ~25 p/l ratio) doing microtrades watching ticks and per minute fluctuations. There is only one thing i don't understand and that is how the forex company providing the software actually makes money off users. Do they take a percent of trades? is it based on your margin? My main reason is, if im thinking of investing 3 thousand or so into a microtrade account, i dont wanna look at the account balance after a month of work at it and see that im actually being hit for all sorts of hidden charges. If someone with some financial experience could give me the downlow on this it would be greatly appreciated.
Hmmm... so it looks like trade cost is determined by pip spread. a 5 pip spread would thus result in a 5 dollar transaction cost. If im trading with a 1.5 pip spread then i only need to let my trade appreciate by 2 pips in order to cover my cost. This is all extremely complicated, especially when it comes down to leverage, where 1% appreciations or deprecations can yield 400% gain or loss at a leverage of 400:1. I understand 400% gain, but i don't know what happens when you suffer a 400% loss Does it come out of your equity, or your initial investment capital? If its only coming out of your equity then you could just leave your money in there until things change, in which case that should be fine, as the currency market is constantly fluctuating. Since i am only microtrading i would hope that I wouldn't need to worry about a huge loss, but even so.... If someone has experience with this i wouldn't mind a succinct and layman's explanation of leverage, margin and spread.
interesting post, last place I expect to see this. not sure if you already got the answers to your questions. leverage: layman, from a relatively small amount initial outlay in your case 3,000 and turning that into a large position. basically funding from debt http://en.wikipedia.org/wiki/Leverage_(finance) spread:difference between bid and ask. high spread often means high PnL margin: has fairly wide definitions but I assume you talking about buying on margins and margin calls. essential borrowing money to take a larger position. margin calls are made when the collateral you have posted has been deemed to be insufficient to pnl. so essential is entirely possible to make a 400% lost, when you taking a highly leverage position on margin. not entirely sure what your talking about in terms of equity, I don't know you portfolio so can't advise, but if you highly leveraged you will have a specific NOP limit, if PnL goes beyond that point they will most likey make a margin call and ask you to post more collateral. if you need to look any other financial terms look you can look up on investopedia. bottom line, don't gamble/speculate with money your not willing to lose, it is entirely possible to loss more money then you put in. fx markets are impact pretty much everything. rouge trader like the one at french bank soc gen had a highly leverage position worth more then the bank itself was worth! and lost it all. if you looking for a bit of experience and looking to become a front office fx trader in some large IB or hedge fund, then go for it. you can only learn from experience. but I would know what you're getting into before you start playing around with large sums of money.
Thanks for the response! So far i've managed to turn my demo account's 5000 dollars into 5700 dollars within a week and a half. I'm probably going to put about 1500 dollars of real money into this within the month. Do you have any firsthand knowledge about the kind of fees a company like FXCM might charge for deposits and withdrawals? or of any miscellaneous administration fees these companies bill to users? I'm not really looking at this as a way to throw huge sums of money around and hope i come out ontop. I'll probably be doing very small trades and hoping to only make maybe 50-70 dollars a night. Since i'll be paying such close attention to my positions I don't think there is nearly as much risk as leaving open positions overnight or for several days.
