Commission Charges

Forex Trading Online

The term Forex relates to foreign exchange. Forex trading online is basically the process of trading in the foreign currency markets and very simply is linked to the movement of one currency against another. You will often be familiar with this if you have ever gone on holiday and had to change your currency into another denomination then change it back when you got home. If you ignore the commission charges you may find that you got a different rate for buying the currency than you did for selling it back on your return. This is to do with the movement of the currency in the markets and is how a profit (or loss) can be made.

Recently, the dollar was very week against the british pound and at one point you could have bought 2 dollars for every pound. If you had £1000 then you could have turned this into $2000. Add in a year of time and you would have found that your dollar will now buy you £0.73. So now you take your $2000 and sell it back to find you have £1460 or a profit of £460. Again you could now wait until the currency moves back in the other direction and use your £1460 to buy more dollars and repeat the cycle.

The above is a very simple example and many forex traders will repeat this but on a more regular basis and shorter time frame with several different currencies. There are also more complicated scenarios that involve trading from one currency to another to a third and then back to your original currency.

Like all trading, forex trading online requires skill and experience in order for the trader to improve their chances of making a profit. Like all trading systems there is no guarantee of profits and the trader always runs the risk of losing money.

Most traders will however admit that Forex trading is much less risky than day trading by comparison and that it is more suitable for a beginner to get into as less investment is involved and as such the wannabe trader can get away with a smaller starting pot than would be the case in day trading.

If you are starting out in forex trading then you will need to find a broker that is a member of one of the regulatory agencies, such as the NFA (National Futures Association), CFTC (Commodities Futures Trading Commission). This way you can be protected from some of the many scams that forex trading online is exposed to. Be wary of any system that promises huge returns and research it thoroughly before you go any further. If you starting out then invest first in education and get yourself a good forex trading course to learn the ins and outs of what is involved.

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Minimum Balance Required For Day Trading

For traders interested in getting into day trading, there is always the pressing question of how much it will cost them to get started and what is the minimum balance required for day trading.

For those traders operating in the United States, day trading is regulated by the Financial Industry Regulatory Authority (FINRA). They have a directive that all brokers must follow stating that if you have four or more day trades within 5 trading days, you will be categorized as a pattern daytrader and thus you must to maintain a minimum of $25k in a margin account.

This very fact alone puts day trading out of reach of most individuals and also lets potential wannabe traders know just how serious this business is. The rule is enforced by all stock brokers as otherwise they would be breaking the law. Additionally, the margins that many day traders work with can be very small – say .25% to 5% and thus it is their capital that allows them to make a trade in these low margins worthwhile. Commission charges can quickly eat into any profits that you may hope to make if you are only trading with small sums of money – this applies to any trading or investment model and is known as your return on investment. To illustrate consider the following example:

Lets say trader A has a balance of $100, trader B has a balance of $1000 and trader C has a balance of $10,000. They all pick the same stock valued at $2 per share. Lets also say that the commission charge for buying and selling is $10.

Now consider that the stock moves from $2 per share by an increase of 5% to a value of $2.10 per share and all parties sell their stocks. Here is a break down of where all three traders stand.

Trader A paid $10 to buy and $10 to sell, leaving him with $80 to buy shares. He was able to buy 40 shares at $2 each. When he sold, his 40 shares were worth $84 so although the stock went up by a healthy 5% he still lost $16.

Trader B paid $10 to buy and $10 to sell, leaving him with $980 to buy shares. For this he was able to obtain 490 shares that were later sold at $2.10 each giving him $1029 or a profit of $29.

Trader C paid his $10 to buy and $10 to sell and had a value of $9980 to buy shares for which he received 4990 shares. Selling these brought him a final value of $10,479 or a profit of $479.

As you can see all three traders carried out exactly the same trade but their available capital had a significant affect on their ability to make a profit. Trader A lost 16% of his capital. Trader B made a 2.9% increase but Trader C made a 4.29% profit because the commission became negligible against the actual trade amount.

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