Margin Trade

As against currency transactions with real delivery or real exchange, the Participants of

FOREX, especially if they have a small capital, use trade with insurance deposit - margin or

leverage trade. Each operation at margin trade necessarily has two stages: purchase (sale) of

currency under one price and then obligatory sale of it (purchase) at another (or at the same) the

price. The first action is defined as opening of position, and the second - closing of position. The

real delivery of the currency does not occur at opening of a position, and the participant who has

opened a position, brings an insurance deposit serving as an indemnification of possible losses

guarantee. The insurance deposit comes back, and there is a calculation of the profit or losses,

which are usually equivalent to the size of insurance deposit after position closing. Thus the

deposit is frequently a hundred times less than that sum given the participant for use in this

trading operation. Operation at margin trade necessarily consists of two parts: position opening

and closing. For example, at the predicting rise in price (amplification) of yen in relation to

dollar we want to buy a cheaper yen for dollars now and to sell it back when it becomes more

expensive. In this case operation will look as follows: position opening - purchase of yen, closing

a position - its sale. All the time the position is not closed, we have “an open position of yen ".

In the same way, if we suppose that yen will become cheaper (weak) in relation to dollar our

operation will consist of such steps: opening of a position - sale of yen, closing a position -

purchase of fallen in price yen. Thus, we have an opportunity to gain profit both at increase and

decrease of an exchange rate.

Absence of uniformity in the quotations of different currencies makes certain

inconveniences, especially for beginners. So, increase in a rate (movement of the chart upwards)

for pound and for euro in relation to dollar (GBPUSD, EURUSD), means a rise in price of these

currencies and downfall of dollar. And for franc, yen (USDCHF, USDJPY) means increase in

rate (movement of the chart upwards), fall of these currencies and rise of dollar. Generally,

during movement of the chart upwards the base currency raises in price, quoted currency

becomes cheaper.

For extraction of profit from the transaction it is necessary to buy cheaper (below at the

chart) and to sell more expansive (above at the chart). The sequence of these actions of value has

no necessity i.e. it is possible to sell all over again above, and then to buy below.