Forex Scalping Overview

A very informative educational video on scalping on a 10 minute chart.

Very useful for forex beginners. Take some time to watch this video if you want to go into scalping strategies.

Just take note that before investing in any forex trading account, practice with a trial/demo account before going live. Again, I wish to remind all readers that forex is a very volatile market that can make you tons of money and at the same time can clean your account out. It is a risky market and so you have to be able to cope with and manage these risks. And for a risk adverse person, personally I feel that the forex market is not for you.

However, it is a good experience for you to try something new. Just start with a small account if you want.

FX Basics : Understanding Margin Calls and Contract Size

Margin Calculation

Margin is calculated in 2 ways: Used Margin and Free Margin.

Used margin is the amount of money used to hold open positions whilst free margin refers to the amount of funds available to place additional positions.

Calculating a Margin Call

Fail-safes have been put in place to help prevent a trader from going into the negative and owing their broker additional funds. This is commonly referred to as a Margin Call. In the Forex market, a margin call typically means that their open positions will be automatically closed.

While in other financial markets a client is called upon to send additional funds or the position(s) will be closed at market price.

The margin level is calculated by dividing the current equity in an account by the current amount of margin in use (used margin).

After dividing the equity by the margin move the decimal two places to the right. A trader whose equity is at $1,000 and who is using a $500 of margin would divide 1,000 by 500 which of course equals 2. Then move the decimal two places to the right; this trader's current margin level or percentage is thus 200%. At 100% margin level a trader is essentially using their entire available margin.

When the margin level drops to a certain percentage, trades will automatically be closed.

Understanding Contract Size in the Forex Market

Each standard lot traded in the Forex market is a $100,000 (of the base currency) contract. In other words, when trading one lot in a standard account, a trader is essentially placing a $100,000 trade in the market.

As such, without leverage, most investors would not be able to afford such a transaction. Leverage of 100 – 1 would allow a trader to place the same one lot ($100,000) trade with the post of $1,000 in margin. $100,000 divided by 100 equals $1,000, thus 100 : 1 leverage means that $1,000 of margin is able to control a $100,000 position.

Many retail Forex brokers also offer a mini account option. Mini accounts are essentially 10% the value of standard accounts, meaning that mini contracts are $10,000 (of the base currency). A trade of one mini lot would be a $10,000 trade. Trading with 100:1 leverage would mean that $100 of margin would control a $10,000 contract.

Understanding the basic terminology will help you in your forex trading escapade.