What sounds a bit absurd at first glance is not so absurd. Forex trading is based on a kind of money lending on the part of the broker. However, one must understand how the Forex trading works.
Forex versus spot
Forex trading has become more and more important for private clients in recent years.
Spot trading requires that the investor has sufficient capital. Foreign exchange is traded on the order of a lot. One lot corresponds to 100,000 units of a currency. In spot trading, the foreign exchange is actually acquired. The forex trade , on the other hand, is a kind of derivative. The customer does not acquire the actual position, but on the basis of a lever trade only an abstract right, which in turn costs only a fraction of the traded volume. This stake, the margin, is derived from the leverage that the broker sets for a particular currency position. If the leverage is 1: 50 for a trade, and 100,000 euros are to be traded against US dollars, the investor’s actual capital will amount to 2,000 euros. In fact, 98,000 euros will be made available to him as a loan by the broker. The risk for the investor is that the trade does not go in the desired direction. If the loss exceeds the capital employed, there is theoretically an additional funding requirement. In this case, the qualitative differences of the broker show up. Good brokers offer a stop-loss function. This automatically terminates a trade when the losses reach a certain percentage of the margin. In this case we avoid both a total loss and a re-shooting of the deferred trade sum.
Forex trading is not a closed book
Forex trading, formerly reserved for institutional investors, is increasingly gaining importance through online brokers, even among private customers. Anyone who is interested in this form of trade , however, must have no fear that he must use funds without further knowledge. Good brokers not only offer their customers a free demo account, but also appropriate seminars and tutorials. The specialist portal Brokervergleich.net introduces the most important brokers and provides valuable information for the decision-making process when selecting the future business partner. The number of forex brokers has become almost confusing. For a layman, it is difficult to understand in which direction his decision should tend. In addition to the hard facts such as commissions or the number of tradable currency pairs, of course, subjective experience, for example, the service standard, play a role.