We all speculate! Don’t kid yourself if you think otherwise. If you can get this basic element of truth, the central core of any business, you would have been many miles ahead of your peers. So let’s begin a basic understanding of margin and margin calls which are at the heart of a successful trading business.
A margin is like going to a T-shirt wholesaler in Chinatown and making a 10% deposit on 100 dozens of T-shirts to be sold at a sports parade because you anticipate a large crowd and a good sale will line your pocket with huge profit. You go to the parade expecting a fortune and hoping to make a few bucks on a 10% deposit with the T-shirt supplier. You’ve never really done this before but you’ve heard stories of other successful hawkers and street vendors.
Your only capital is the deposit you made with the supplier and a quick profit forecast turned ugly because of poor weather, vandals who damaged your goods or city seizure because you had no license to hawk your wares. In any case, you lost and did not make a profit but your supplier does not care. He calls for his balance and threatens to seize your building, damage your credit, something you need to be a viable businessman. Simplistic as this analogy is, in Forex trading things are no different. It follows the same logic I just referenced above. So what is a margin and margin calls? [click to continue…]
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