Let’s dive deeper into how trading works. In the previous lesson, we talked about currency pairs and quotes. Now, let’s explore the basics of margin trading.
Think of it like this:
- Buy (long position): You believe the price will go up.
- Sell (short position): You think the price will go down.
Margin Trading: Amplify Your Trading Power
Margin trading is like borrowing money from your broker to increase your buying power. It’s like using a magnifying glass to make things look bigger.
For example, with 1:100 leverage and a $1,000 deposit, you can control a $100,000 position. Your profit or loss will be based on this larger amount.
Key points to remember:
- Maximum leverage: The highest ratio of borrowed funds available.
- Actual leverage: Shows how much you’re using borrowed funds.
- Margin: The collateral you need to open a trade.
Be cautious: Using margin can increase your potential profit but also your risk.
To manage risk, traders use stop-loss and take-profit orders. These help automatically close a trade at a specific price, limiting losses or locking in gains.
In the next lesson of our trading course, we’ll cover the essentials of the MetaTrader platform.
Lesson 5: MetaTrader 4 and MetaTrader 5 – Key Features and Comparison
