What Is Equity in Forex Trading - PowerPoint PPT Presentation

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What Is Equity in Forex Trading


Forex Trade equity refers to the absolute value of a forex trader’s account. When a trader is an open position, the trading platform, for example, is Meta Trade will show few parameters into the equity option. – PowerPoint PPT presentation

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Title: What Is Equity in Forex Trading

What Is Equity in Forex Trading?
  • Theforexsecret.com

  • In Forex trading, many key concepts are very
    important to understand. Without proper knowledge
    of these concepts, you cannot go too long path.
    So one of the important concepts is Equity in
    Forex trading.

To understand this we have to look at when a
trade is open and also look at when the market is
Shortly speaking in forex trading equity means
the total amount of money in my account. When
Forex trader actively joins the market I mean
during the open trade, the total amount of equity
is equal to the total amount of investment in the
Forex Business. If you are not trading actively,
then the equity is known as free margin or you
can call it the account balance.
Equity in Forex Refer To?   What is equity means
in Forex Trading? Forex Trade equity refers to
the absolute value of a forex traders account.
When a trader is an open position, the trading
platform, for example, is Meta Trade will show
few parameters into the equity option.  
1st When we look at the forex, the first
parameters to understand inequity is margin. It
is the amount of collateral as security to trade
if he wants to utilize the leverage provided by
the broker. You should be very careful because
the forex exchange market is very highly
leveraged. It allows traders to put a small
amount of money and increase it so that they can
trade a large amount of lot.    
The second most important thing is the balance
list. It reflects the total shared balance on the
traders account as a whole. We should let you
know that it is not affected by any open
positions until all your trade options are
closed. Unrealized profit or loss is the third
parameter. It refers to loss or profit in
financial terms. Traders account amass all amount
when it is open to the market.
Investors presence in the market truly describes
the positions in the market but as the amount is
not added to the account they remain unrealized
but they can change. But they can only be
realized whether it is profit or loss when it is
closed. It is the only time when you can add or
remove from the account.  
There are many ways to define a traders equity
as follows        The Amount the profit or loss
that the account from either open or closed
positions of the trade.      The number of
Equity changes  from the unrealized profits or
losses in active positions      When you close
the trade, if it is profit, it is added or if it
is losses, it is removed from the actual
account balance then you will know the total
amount of Forex equity.
The idea of account leverage, balance, equity,
the margin is interconnected. As a forex trader,
you have to know all these things so that you can
manage your capital while trading. There are
many traders who fear the margin call because
they do not understand the interrelation among
the leverage, account balance, equity, margin.  
Equity is also known to be a very important
subject in Forex trading. If you look, you will
find most of the cases Forex equity is higher
then there margin used to trade.  The
terminology leverage and equity are frequently
used in the Forex trading business. It also can
be used to define the profit and loss of a
particular account. That makes it very important
to maintain the risk-reward ratio.
The Lot size leverage and margin all work
together when it comes down to the mathematical
formulas. How many PIPs you will earn is
determined by your lot size. You cannot trade 1
2 you have to do it in a lot size. so each small
block of currency is called lot size. There are
three basic ideas of lot size
1. Micro lot 1000 Dollar 2.. Mini lot
10,000 Dollar 3. Standard Lot 1,00,000
Dollar    So if you look at the EURO/USD, what
would be the lot size?       1 Micro lot
0.10 per PIPS   1 Mini Lot 1.00 Per PIPS
  1 Standard Lot 10.00 per PIPS
Margin   Margin is a requirement of deposit
which is used to open and maintain the open
position. But you have to remember this is not a
transaction cost. It is a path of your account
balance which is set aside which is allocated as
a deposit to starch the trading.  
According to the rule, margins are multiplied by
leverage to determine the lot size. Marginitit
shows the real money from your trading account.
Now example you want to trade 1 micro lot which
is worth 1000. And if your broker now offers
you 150 leverage. So now if you want to maintain
this 1,000 micro lot then you have to keep 20
of margin in your account. So if we put this in
the equation will find 
 20 (Margin) x 50 (Leverage) 1000.   Taking
the money your broker will separate it during the
trade but you will get back it, doesn't matter if
you win or lose in the trade.   and Free
Margin  Equity  Margin.  
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At the same time, it is very necessary to mention
that any losing position must be crossed so that
we can balance our equity and protect the
leveraged capital.   On the other hand, a broker
can set a percentage of the margin and if it
remains constantly towards the downtrend at some
point the account will be closed automatically.
So if the trader still wants to maintain the
account open, he has to bring more capital on
that account, his balance will decrease but the
account will remain open.
The broker house offers a different type of
accounts for the traders depending on the nature
of the clients. There are two kinds of
traders          The retail traders       The
professional traders   So having good
comprehensive knowledge about equity can help you
to manage your capital and to comprehends the
imminent risk and reward ratio. So you should
keep our equity high enough so that it doesn't
get exposed to the danger zone. Show the best way
is to apply your newly grown knowledge in the
demo account and after that, you can trade in
real account.
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