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The minimum capital required to start day trading forex

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It's easy to start day trading currencies because the foreign exchange (forex) market is one of the most accessible financial markets. Some forex brokers require a minimum initial deposit of only $50 to open an account and some accounts can be opened with an initial deposit of $0.

And unlike the stock market, for which the securities and exchange commission requires day traders to maintain an account with $25,000 in assets, there is no legal minimum amount required for forex trading.

But just because you could start with as little as $50 doesn't mean that's the amount you should start with. You may want to consider some scenarios involving the potential risks and rewards of various investment amounts before determining how much money to put in your forex trading account.

Risk management

Day traders shouldn't risk more than 1% of their forex account on a single trade. You should make that a hard and fast rule. That means, if your account contains $1,000, then the most you'll want to risk on a trade is $10. If your account contains $10,000, you shouldn't risk more than $100 per trade.

Even great traders have strings of losses; if you keep the risk on each trade small, a losing streak can't significantly deplete your capital. Risk is determined by the difference between your entry price and the price at which your stop-loss order goes into effect, multiplied by the position size and the pip value.

Illustration about starting day trading forex

Pip values and trading lots

The forex market moves in pips. Let's say the euro-U.S. Dollar (EUR/USD) currency pair is priced at 1.3025. That means the value of one euro, the first currency in the pair, which is known as the base currency, is $1.3025.

For most currency pairs, a pip is 0.0001, which is equivalent to 1/100th of a percent. If the EUR/USD price changes to 1.3026, that's a one pip move. If it changes to 1.3125, that's a 100 pip move. An exception to the pip value "rule" is made for the japanese yen. A pip for currency pairs in which is the yen is the second currency—called the quote currency—is 0.01, which is equivalent to 1 percent.

Forex pairs trade in units of 1,000, 10,000 or 100,000, called micro, mini, and standard lots.

When USD is listed second in the pair, as in EUR/USD or AUD/USD (australian dollar-U.S. Dollar), and your account is funded with U.S. Dollars, the value of the pip per type of lot is fixed. If you hold a micro lot of 1,000 units, each pip movement is worth $0.10. If you hold a mini lot of 10,000, then each pip move is $1. if you hold a standard lot of 100,000, then each pip move is $10. Pip values can vary by price and pair, so knowing the pip value of the pair you're trading is critical in determining position size and risk.

Stop-loss orders

When trading currencies, it's important to enter a stop-loss order in case the value of the base currency goes in the opposite direction of your bet. A simple stop-loss order would be 10 pips below the current price when you expect the price to rise or 10 pips above the current price when you expect the price to fall.

Capital scenarios

$100 in the account

Assume you open an account for $100. You will want to limit your risk on each trade to $1 (1% of $100).

If you place a trade in EUR/USD, buying or selling one micro lot, your stop-loss order must be within 10 pips of your entry price. Since each pip is worth $0.10, if your stop loss were 11 pips away, your risk would be $1.10 (11 x $0.10), which is more risk than you want.

You can see how opening an account with only $100 severely limits how you can trade. Also, if you are risking a very small dollar amount on each trade, by extension you're going to be making only small gains when you bet correctly. To make bigger gains—and possibly derive a reasonable amount of income from your trading activity—you will require more capital.

$500 in the account

Now assume you open an account with $500. You can risk up to $5 per trade and buy multiple lots. For example, you can set a stop loss 10 pips away from your entry price and buy five micro lots and still be within your risk limit (because 10 pips x $0.10 x 5 micro lots = $5 at risk).

Or if you choose to place a stop loss 25 pips away from the entry price, you can buy two micro lots to keep the risk on the trade below 1% of the account. You would buy only two micro lots because 25 pips x $0.10 x 2 micro lots = $5.

Starting with $500 will provide greater trading flexibility and produce more daily income than starting with $100. But most day traders will still be able to make only $5 to $15 per day off this amount with any regularity.

$5,000 in the account

If you start with $5,000, you have even more flexibility and can trade mini lots as well as micro lots. If you buy the EUR/USD at 1.3025 and place a stop loss at 1.3017 (eight pips of risk), you could buy 6 mini lots and 2 micro lots.

Your maximum risk is $50 (1% of $5,000), and you can trade in mini lots because each pip is worth $1 and you've chosen an 8 pip stop-loss. Divide the risk ($50) by (8 pips x $1) to get 6.25 for the number of mini lots you could buy without exceeding your risk. You would break up 6.25 mini lots into 6 mini lots (6 x $1 x 8 pips = $48) and 2 micro lots (2 x $0.10 x 8 pips = $1.60), which puts a total of only $49.60 at risk.

With this amount of capital and the ability to risk $50 on each trade, the income potential moves up, and traders can potentially make $50 to $150 a day, or more, depending on their forex strategy.

Recommended capital

Starting out with at least $500 gives you flexibility in how you can trade that an account with only $100 in it does not have. Starting with $5,000 or more is even better because it can help you produce a reasonable amount of income that will compensate you for the time you're spending on trading.

Forex trading: A beginner's guide

Forex is a portmanteau of foreign currency and exchange. Foreign exchange is the process of changing one currency into another currency for a variety of reasons, usually for commerce, trading, or tourism. According to a recent triennial report from the bank for international settlements (a global bank for national central banks), the average was more than $5.1 trillion in daily forex trading volume.

Key takeaways

The foreign exchange (also known as FX or forex) market is a global marketplace for exchanging national currencies against one another.

Because of the worldwide reach of trade, commerce, and finance, forex markets tend to be the largest and most liquid asset markets in the world.

Currencies trade against each other as exchange rate pairs. For example, EUR/USD.

Forex markets exist as spot (cash) markets as well as derivatives markets offering forwards, futures, options, and currency swaps.

Market participants use forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among several other reasons.

What is the forex market?

The foreign exchange market is where currencies are traded. Currencies are important to most people around the world, whether they realize it or not, because currencies need to be exchanged in order to conduct foreign trade and business. If you are living in the U.S. And want to buy cheese from france, either you or the company that you buy the cheese from has to pay the french for the cheese in euros (EUR). This means that the U.S. Importer would have to exchange the equivalent value of U.S. Dollars (USD) into euros. The same goes for traveling. A french tourist in egypt can't pay in euros to see the pyramids because it's not the locally accepted currency. As such, the tourist has to exchange the euros for the local currency, in this case the egyptian pound, at the current exchange rate.

One unique aspect of this international market is that there is no central marketplace for foreign exchange. Rather, currency trading is conducted electronically over-the-counter (OTC), which means that all transactions occur via computer networks between traders around the world, rather than on one centralized exchange. The market is open 24 hours a day, five and a half days a week, and currencies are traded worldwide in the major financial centers of london, new york, tokyo, zurich, frankfurt, hong kong, singapore, paris and sydney—across almost every time zone. This means that when the trading day in the U.S. Ends, the forex market begins anew in tokyo and hong kong. As such, the forex market can be extremely active any time of the day, with price quotes changing constantly.

A brief history of forex

Unlike stock markets, which can trace their roots back centuries, the forex market as we understand it today is a truly new market. Of course, in its most basic sense—that of people converting one currency to another for financial advantage—forex has been around since nations began minting currencies. But the modern forex markets are a modern invention. After the accord at bretton woods in 1971, more major currencies were allowed to float freely against one another. The values of individual currencies vary, which has given rise to the need for foreign exchange services and trading.

Commercial and investment banks conduct most of the trading in the forex markets on behalf of their clients, but there are also speculative opportunities for trading one currency against another for professional and individual investors.

Spot market and the forwards & futures markets

There are actually three ways that institutions, corporations and individuals trade forex: the spot market, the forwards market, and the futures market. Forex trading in the spot market has always been the largest market because it is the "underlying" real asset that the forwards and futures markets are based on. In the past, the futures market was the most popular venue for traders because it was available to individual investors for a longer period of time. However, with the advent of electronic trading and numerous forex brokers, the spot market has witnessed a huge surge in activity and now surpasses the futures market as the preferred trading market for individual investors and speculators. When people refer to the forex market, they usually are referring to the spot market. The forwards and futures markets tend to be more popular with companies that need to hedge their foreign exchange risks out to a specific date in the future.

More specifically, the spot market is where currencies are bought and sold according to the current price. That price, determined by supply and demand, is a reflection of many things, including current interest rates, economic performance, sentiment towards ongoing political situations (both locally and internationally), as well as the perception of the future performance of one currency against another. When a deal is finalized, this is known as a "spot deal." it is a bilateral transaction by which one party delivers an agreed-upon currency amount to the counter party and receives a specified amount of another currency at the agreed-upon exchange rate value. After a position is closed, the settlement is in cash. Although the spot market is commonly known as one that deals with transactions in the present (rather than the future), these trades actually take two days for settlement.

Unlike the spot market, the forwards and futures markets do not trade actual currencies. Instead they deal in contracts that represent claims to a certain currency type, a specific price per unit and a future date for settlement.

In the forwards market, contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves.

In the futures market, futures contracts are bought and sold based upon a standard size and settlement date on public commodities markets, such as the chicago mercantile exchange. In the U.S., the national futures association regulates the futures market. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement.

Both types of contracts are binding and are typically settled for cash at the exchange in question upon expiry, although contracts can also be bought and sold before they expire. The forwards and futures markets can offer protection against risk when trading currencies. Usually, big international corporations use these markets in order to hedge against future exchange rate fluctuations, but speculators take part in these markets as well.

Note that you'll often see the terms: FX, forex, foreign-exchange market, and currency market. These terms are synonymous and all refer to the forex market.

Forex for hedging

Companies doing business in foreign countries are at risk due to fluctuations in currency values when they buy or sell goods and services outside of their domestic market. Foreign exchange markets provide a way to hedge currency risk by fixing a rate at which the transaction will be completed.

To accomplish this, a trader can buy or sell currencies in the forward or swap markets in advance, which locks in an exchange rate. For example, imagine that a company plans to sell U.S.-made blenders in europe when the exchange rate between the euro and the dollar (EUR/USD) is €1 to $1 at parity.

The blender costs $100 to manufacture, and the U.S. Firm plans to sell it for €150—which is competitive with other blenders that were made in europe. If this plan is successful, the company will make $50 in profit because the EUR/USD exchange rate is even. Unfortunately, the USD begins to rise in value versus the euro until the EUR/USD exchange rate is 0.80, which means it now costs $0.80 to buy €1.00.

The problem the company faces is that while it still costs $100 to make the blender, the company can only sell the product at the competitive price of €150, which when translated back into dollars is only $120 (€150 X 0.80 = $120). A stronger dollar resulted in a much smaller profit than expected.

The blender company could have reduced this risk by shorting the euro and buying the USD when they were at parity. That way, if the dollar rose in value, the profits from the trade would offset the reduced profit from the sale of blenders. If the USD fell in value, the more favorable exchange rate will increase the profit from the sale of blenders, which offsets the losses in the trade.

Hedging of this kind can be done in the currency futures market. The advantage for the trader is that futures contracts are standardized and cleared by a central authority. However, currency futures may be less liquid than the forward markets, which are decentralized and exist within the interbank system throughout the world.

Forex for speculation

Factors like interest rates, trade flows, tourism, economic strength, and geopolitical risk affect supply and demand for currencies, which creates daily volatility in the forex markets. An opportunity exists to profit from changes that may increase or reduce one currency's value compared to another. A forecast that one currency will weaken is essentially the same as assuming that the other currency in the pair will strengthen because currencies are traded as pairs.

Imagine a trader who expects interest rates to rise in the U.S. Compared to australia while the exchange rate between the two currencies (AUD/USD) is 0.71 (it takes $0.71 USD to buy $1.00 AUD). The trader believes higher interest rates in the U.S. Will increase demand for USD, and therefore the AUD/USD exchange rate will fall because it will require fewer, stronger USD to buy an AUD.

Assume that the trader is correct and interest rates rise, which decreases the AUD/USD exchange rate to 0.50. This means that it requires $0.50 USD to buy $1.00 AUD. If the investor had shorted the AUD and went long the USD, he or she would have profited from the change in value.

Currency as an asset class

There are two distinct features to currencies as an asset class:

You can earn the interest rate differential between two currencies.

You can profit from changes in the exchange rate.

An investor can profit from the difference between two interest rates in two different economies by buying the currency with the higher interest rate and shorting the currency with the lower interest rate. Prior to the 2008 financial crisis, it was very common to short the japanese yen (JPY) and buy british pounds (GBP) because the interest rate differential was very large. This strategy is sometimes referred to as a "carry trade."

Why we can trade currencies

Currency trading was very difficult for individual investors prior to the internet. Most currency traders were large multinational corporations, hedge funds or high-net-worth individuals because forex trading required a lot of capital. With help from the internet, a retail market aimed at individual traders has emerged, providing easy access to the foreign exchange markets, either through the banks themselves or brokers making a secondary market. Most online brokers or dealers offer very high leverage to individual traders who can control a large trade with a small account balance.

Forex trading: A beginner’s guide

Forex trading risks

Trading currencies can be risky and complex. The interbank market has varying degrees of regulation, and forex instruments are not standardized. In some parts of the world, forex trading is almost completely unregulated.

The interbank market is made up of banks trading with each other around the world. The banks themselves have to determine and accept sovereign risk and credit risk, and they have established internal processes to keep themselves as safe as possible. Regulations like this are industry-imposed for the protection of each participating bank.

Since the market is made by each of the participating banks providing offers and bids for a particular currency, the market pricing mechanism is based on supply and demand. Because there are such large trade flows within the system, it is difficult for rogue traders to influence the price of a currency. This system helps create transparency in the market for investors with access to interbank dealing.

Most small retail traders trade with relatively small and semi-unregulated forex brokers/dealers, which can (and sometimes do) re-quote prices and even trade against their own customers. Depending on where the dealer exists, there may be some government and industry regulation, but those safeguards are inconsistent around the globe.

Most retail investors should spend time investigating a forex dealer to find out whether it is regulated in the U.S. Or the U.K. (dealers in the U.S. And U.K. Have more oversight) or in a country with lax rules and oversight. It is also a good idea to find out what kind of account protections are available in case of a market crisis, or if a dealer becomes insolvent.

Pros and challenges of trading forex

Pro: the forex markets are the largest in terms of daily trading volume in the world and therefore offer the most liquidity. this makes it easy to enter and exit a position in any of the major currencies within a fraction of a second for a small spread in most market conditions.

Challenge: banks, brokers, and dealers in the forex markets allow a high amount of leverage, which means that traders can control large positions with relatively little money of their own. Leverage in the range of 100:1 is a high ratio but not uncommon in forex. A trader must understand the use of leverage and the risks that leverage introduces in an account. Extreme amounts of leverage have led to many dealers becoming insolvent unexpectedly.

Pro: the forex market is traded 24 hours a day, five days a week—starting each day in australia and ending in new york. The major centers are sydney, hong kong, singapore, tokyo, frankfurt, paris, london, and new york.

Challenge: trading currencies productively requires an understanding of economic fundamentals and indicators. A currency trader needs to have a big-picture understanding of the economies of the various countries and their inter-connectedness to grasp the fundamentals that drive currency values.

The bottom line

For traders—especially those with limited funds—day trading or swing trading in small amounts is easier in the forex market than other markets. For those with longer-term horizons and larger funds, long-term fundamentals-based trading or a carry trade can be profitable. A focus on understanding the macroeconomic fundamentals driving currency values and experience with technical analysis may help new forex traders to become more profitable.

Forex trading: A beginner's guide

Key takeaways

The foreign exchange (also known as FX or forex) market is a global marketplace for exchanging national currencies against one another.

Because of the worldwide reach of trade, commerce, and finance, forex markets tend to be the largest and most liquid asset markets in the world.

Currencies trade against each other as exchange rate pairs. For example, EUR/USD.

Forex markets exist as spot (cash) markets as well as derivatives markets offering forwards, futures, options, and currency swaps.

Market participants use forex to hedge against international currency and interest rate risk, to speculate on geopolitical events, and to diversify portfolios, among several other reasons.

What is the forex market?

A brief history of forex

Spot market and the forwards & futures markets

In the forwards market, contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves.

Note that you'll often see the terms: FX, forex, foreign-exchange market, and currency market. These terms are synonymous and all refer to the forex market.

Forex for hedging

Forex for speculation

Currency as an asset class

There are two distinct features to currencies as an asset class:

You can earn the interest rate differential between two currencies.

You can profit from changes in the exchange rate.

Why we can trade currencies

Forex trading: A beginner’s guide

Forex trading risks

Pros and challenges of trading forex

The bottom line

About the online forex trading market

We can easily define forex trading as trading between different foreign currencies. The popularity of this asset class has recently increased due to the relative ease to obtain information about macroeconomic and political developments which are affecting forex rates.

That said, forex trading is also happening in the real world all the time. For example, if you are traveling abroad to a country that is not using your currency you are typically preparing for the trip by exchanging money. Transactions such as this happen on a large global scale and are affecting forex markets on a daily basis.

Today, the forex market is considered to be the most liquid market in the world, primarily due to the high frequency with which currencies are being exchanged worldwide. The bank for international settlements' (BIS), december 2016 statistics report shows that the total liquidity traded in currency markets daily is roughly $5.1TR.

Thanks to the high liquidity of the forex market, it is relatively stable to the rest of the spectrum. Seeing moves in excess of 2% per day is a rarity in normal market conditions. This is appealing to new traders, since they can manage their risk easier. That said, traders love volatility to a certain extent and day traders, investors, and scalpers, get to enjoy a fair bit of it throughout the year.

One other key aspect of the foreign exchange market is that it is decentralized. There is no particular location where forex is traded, however, it is important to note the different trading sessions. The trading week starts on sunday evening around 22:00 GMT when sydney opens. Typically the most active trading session is in london which opens at 08:00 GMT and closes at 17:00 GMT. New york is also adding to the flow between 01:00 GMT and 22:00 GMT. Throughout the week, the forex market doesn't close, which is another aspect that traders like.

What is the spread in forex?

The spread is the difference between the buying and the selling price of a currency. This is the cost of trading currencies, and the profit of your forex broker each time you trade.

What is a pip in forex?

The pip is the smallest price increment which the price can make. Forex is traditionally quoted in four digits after the decimal as in EUR/USD 1.1285. Some brokers are also quoting pippettes or fractional pips, adding a fifth digit after the decimal: EUR/USD 1.12854. Depending on the pair you are looking at you will see 5 to 6 numbers, with japanese yen quotes being displayed with 2 or 3 digits after the decimal point - USD/JPY 112.56(5).

Below is an example of the definition of a pip in forex for the most famous currency pair: the EUR/USD.

The pip in this example is the fourth digit after the decimal, which is the number 2.

Here’s another example of the USD/JPY pair.

The pip in this example is the second digit after the decimal, which is the number 0.

The next logical question is how to calculate pips in forex?

In fact, several renowned trading platforms offer their traders the possibility to automatically calculate the value of the pips when trading forex.

However, here is an example to fully-understand how the pip value is calculated.

The base currency’s pip value = (0.0001 / exchange rate) * contract size

The best example in this context is USD/CAD = 1.2740, where the pip value = 100,000 USD * (0.00001 / 1.2740) = $7.84.

What is a lot?

The volume of each forex trade is sized in lots. Traders can accommodate the appropriate volume of their trades in accordance to their risk-tolerance and the size of their account.

There are three lot sizes:

Standard lot - equals 100,000 units of base currency, each pip equals $10 in the EURUSD.

Mini lot - equals 10,000 units of base currency, each pip equals $1 in the EURUSD.

Micro lot - equals 1000 units of base coin, each pip equals $0.1 in the EURUSD.

Your position's lot size equals the volume traded on the forex market

Size your position appropriately in order to avoid taking excessive risks

The value of every pip in forex is determined by the trade's size e.G. The lot size.

What is forex leverage & and what does trading on margin means?

This section will explain the concept of trading forex with leverage, its mechanics, and how to do it.

Leverage in forex is a tool provided by brokers; its main objective is to amplify the size of the trader’s capital, so it makes economic sense to trade small price changes.

As an example, trading a 0.1% price change with a small trading account makes little sense to most traders, but with the use of leverage, the trader can amplify this 0.1% price change. So instead of making a 0.1% impact on the trading account, it could be 1%, or 10%, etc. We just need to remember that leverage amplifies our gains as well as losses.

Trading accounts tend to default to one of the following leverage multiples: 50:1, 100:1, 200:1, 300:1, 400:1, and 500:1. However, the effective leverage is ultimately controlled by the individual trader.

How to calculate leverage in forex?

If the available leverage is 300:1, then this means that every dollar on the trader’s account can purchase $300. The trader only needs to set aside a portion of his capital, in this case, one dollar, and the broker lends the remaining $299 to its client. Once the deal is closed, the client returns the $299 to the broker. All of this is automatically managed by the trading platform.

Trading forex on margin

Margin and leverage are different sides of the same concept. Let's say that the trader’s account balance is $1000 and that he chooses leverage of 1:100 to buy a standard USD/CAD contract (100,000 units)

The trader would need to set aside the $1000 as margin with his broker, to open the $100,000 position. So effectively, the margin requirement as a percentage of the total position results in certain leverage. The higher the margin requirement is in percent, the lower is the leverage, as shown in the table below.

The table below shows the required margin in dollars need to open a standard and mini contract at different margin levels.

Leverage	margin requirement	standard contract has 100K units of base currency	mini contract has 10K units of base currency
100:1	1%	1000 units (e.G. Dollars)	100 units (e.G. Dollars)
200:1	0.5%	500 units (e.G. Dollars)	50 units (e.G. Dollars)
400:1	0.025%	250 units (e.G. Dollars)	25 units (e.G. Dollars)

What are the advantages of trading forex?

High liquidity

According to the bank of international settlements (BIS), the daily forex volume exceeded $5.1TR, which protects the trader in currency markets as no person or financial entity can manipulate or control price fluctuations in long periods of time

In fact, online currency trading differs from stock markets by being extremely volatile in the short-term, and range bound in the multi-year perceptive.

A 24/5 market

Forex traders can work around the clock, five days a week, as the FX markets only close for the weekend.

The 24-hour trading gives traders the freedom to trade anytime, whether they have a full-time job or not. Stock markets are not quite as flexible, they close and open every day, and price fluctuations tend to be limited to certain hours each day.

Profits on price rises and declines

A forex trader can profit on currencies, whether their price is increasing or decreasing. If the price movement is bullish, traders tend to buy; on the contrary, if prices fall, traders can make a profit on the decline (also known as short selling).

Easy monitoring & analysis

Online FX trading is limited to a few selected currencies such as the USD, euro, british pound, australian, and new zealand dollar, and the japanese yen, which can be easily covered by a private investor, unlike the stock markets where there are many shares and companies to track.

Ability to trade small amount of money

Currency trading is known for its low spreads (low costs to trading), and access to leverage, this gives traders with small deposits the possibility to profit on the global markets.

Decentralized activity

Traders can exchange forex online; through modern trading platforms provided by brokerage firms, regardless of their location.

Trading without commissions

Brokerage firms make a profit from spreads; they do not charge additional fees for their services or trading platforms.

High leverage

Forex leverage is a tool provided by the financial intermediary to the client. It aims to maximize the traders’ capital and helps them execute transactions that exceed their capital.

Opening a demo trading account

Forex trading firms offer risk-free, demo trading accounts where traders can test their strategies and get the feel of the forex market’s dynamics. There is no difference between the real forex trading account and the demo forex trading account. However, the latter requires funding, whereas the demo forex trading account has fictitious capital.

Risks of trading forex

Albeit forex trading exhibits several advantages, it also bares many risks; the speculation activity could lead a trader to overuse leverage, which can be costly sometimes. Any occurring loss in this case results from mild market movements; therefore, traders should focus on carefully managing their capital – according to their risk-tolerance strategy. Moreover, traders should always open a stop loss position for all their deals to avoid dramatic account losses, or trading through the margin.

On another note, given the volatile character of the financial markets and the major fluctuations it undergoes due to political or economic events, price gapes leading to negative account access could arise. That being said, it is recommended to avoid trading during major political events, or presidential elections, or even during the holidays.

Forex capital trading

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О компании IC markets

The website www.Icmarkets.Com/global is operated by IC markets global an entity that is not established in the EU or regulated by an EU national competent authority. The entity falls outside the EU regulatory framework i.E. Mifid II and there is no provision for an investor compensation scheme. Please read our terms & conditions

Please confirm, that the decision was made independently at your own exclusive initiative and that no solicitation or recommendation has been made by IC markets or any other entity within the group.

**данные, полученные из независимых источников, подтверждают, что сводный недельный спред по EURUSD был лучше, чем среди 32 прямых конкурентов в секторе форекс в 96% времени в период с января по декабрь 2019 года.

***среднее время исполнения ордера, включающее его получение, обработку и подтверждение исполнения, составляет 36,5 мс.

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Risk warning: trading derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved and seek independent advice if necessary.

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How forex trades are taxed

Find out the basics before you make your first foreign exchange trade

For traders in foreign exchange, or forex, markets, the primary goal is simply to make successful trades and see the forex account grow. In a market where profits and losses can be realized in the blink of an eye, many just want to make money in the short-term without really thinking about the longer-term ramifications. Nevertheless, it usually makes some sense to consider the tax implications of buying and selling forex before making that first trade.

Forex options and futures traders

For tax purposes, forex options and futures contracts are considered IRC section 1256 contracts, which are subject to a 60/40 tax consideration. In other words, 60% of gains or losses are counted as long-term capital gains or losses, and the remaining 40% is counted as short term.

Key takeaways

Aspiring forex traders might want to consider tax implications before getting started.

Forex futures and options are 1256 contracts and taxed using the 60/40 rule, with 60% of gains or losses treated as long-term capital gains and 40% as short-term.

Spot forex traders are considered "988 traders" and can deduct all of their losses for the year.

Currency traders in the spot forex market can choose to be taxed under the same tax rules as regular commodities 1256 contracts or under the special rules of IRC section 988 for currencies.

A 60/40 tax treatment is often favorable for individuals in high income tax brackets. For example, the proceeds of stocks sold within one year of their purchase are considered short-term capital gains and are always taxed at the same rate as the investor's ordinary income, which can be as much as 37%. When trading futures or options, investors are effectively taxed at the maximum long-term capital gains rate, or 20% (on 60% of the gains or losses) and the maximum short-term capital gains rate of 37% (on the other 40%).

For over-the-counter (OTC) investors

Most spot traders are taxed according to IRC section 988 contracts, which are for foreign exchange transactions settled within two days, making them open to treatment as ordinary losses and gains. If you trade spot forex, you will likely be grouped in this category as a "988 trader." if you experience net losses through your year-end trading, being categorized as a "988 trader" is a substantial benefit. As in the 1,256 contract category, you can count all of your losses as "ordinary losses," not just the first $3,000.

Which contract to choose

Now comes the tricky part: deciding how to file taxes for your situation. While options or futures and OTC are grouped separately, the investor can choose to trade as either 1256 or 988. Individuals must decide which to use by the first day of the calendar year.

IRC 988 contracts are simpler than IRC 1256 contracts. The tax rate remains constant for both gains and losses, which is better when the trader is reporting losses. Notably, 1256 contracts, while more complex, offer 12% more savings for a trader with net gains.

Most accounting firms use 988 contracts for spot traders and 1256 contracts for futures traders. That's why it's important to talk with your accountant before investing. Once you begin trading, you cannot switch from one to the other.

The rules outlined here apply to U.S. Traders with accounts at U.S. Brokerage firms.

Most traders naturally anticipate net gains, and often elect out of 988 status and into 1256 status. To opt out of a 988 status, you need to make an internal note in your books as well as file the change with your accountant. Complications can intensify if you trade stocks as well as currencies because equity transactions are taxed differently, making it more difficult to select 988 or 1256 contracts.

Keeping track

You can rely on your brokerage statements, but a more accurate and tax-friendly way of keeping track of profit and loss is through your performance record.

This is an IRS-approved formula for record-keeping:

Subtract your beginning assets from your end assets (net)

Subtract cash deposits (to your accounts) and add withdrawals (from your accounts)

Subtract income from interest and add interest paid

Add in other trading expenses

The performance record formula will give you a more accurate depiction of your profit/loss ratio and will make year-end filing easier for you and your accountant.

Things to remember

When it comes to forex taxation, there are a few things to keep in mind:

Mind the deadline: in most cases, you are required to select a type of tax situation by jan. 1. If you are a new trader, you can make this decision any time before your first trade.

Keep good records: it will save you time when tax season approaches. That will give you more time to trade and less time to prepare your taxes.

Pay what you owe: some traders try to beat the system and don't pay taxes on their forex trades. Since over-the-counter trading is not registered with the commodities futures trading commission (CFTC), some think they can get away with it. You should know that the IRS will catch up eventually, and the tax avoidance fees will be greater than any taxes you owed.

The bottom line

Whether you are planning on making forex a career path or are simply interested in dabbling in it, taking the time to file correctly can save you hundreds if not thousands in taxes. It's a part of the process that's well worth the time.

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Stock trading capital

Is one of the world's fastest growing forex& CFD provider.

The company offers foreign exchange and CFD trading on multiple trading platforms, including the globally popular metatrader 4 platform.

Stock trading capital is a market leader when it comes to customer service, offering its clients top-notch products and services in over 20 different languages.

The company's focus on superior service has been frequently recognized by the industry. Stock trading capital was the recipient of the malaysian investor show winning the best broker of asia 2013.

Stock trading capital is a fully licensed and regulated company.

Daily news video tutorials

Keep up to date with the latest market news and trends with our daily live newscast brought to you from the stock trading capital studios

Learn to be a better trader by keeping your finger on the pulse of global market activity.

Watch a brief introductory video to learn how to use the platform.

Partnership program

The alliance program was developed to reward our customers, affiliates, and introducing brokers for referring new clients to open trading accounts with stock trading capital. This program is designed to offer a compensation…

White labels

This is where technology, operations, and experience all meet in one place. We offer a standard,as well as completely customizable integrated solutions that include everything a brokeragerequires:…

Partners

From our conception to where we are today, stock trading capital has always endeavored to be the best. Being the best however is only half the journey, remaining the best takes teamwork, perseverance and passion.

Stock trading capital child foundation

Stock trading capital has a deep-rooted sense of responsibility that it should help those less fortunate and actively lend assistance at every appropriate opportunity to do so. Contributing to local communities through charitable..

Forex platforms

Stock trading capital pioneered the offering of an MT4 platform with trading execution quality in mind. Trade on an MT4 with no requotes, no rejections with flexible leverage ranging from 1:1 - to 1000:1.

Stock trading capital MT4 features:

- Over 100 instruments including forex, cfds and futures
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- 3 chart types
- Micro lot accounts (optional)
- Hedging allowed
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Economic calendar

We offer fast account approval that only takes up to 24 hours before you can start trading!

Why choose stock trading capital for currency trading?

There are plenty of forex brokers out there in the market and we have differentiated ourselves from rest of the herd by focusing on providing top notch customer service to everyone including advance traders & beginner forex traders. Stock trading capital consists of specialized team that have immense experience in currency trading and other commodities such as gold, oil, bonds and so on.

We know what you want

Better technology

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Best forex brokers

What is forex market all about?

The roots of forex that is foreign exchange market can be traced backed to the end of 1970's after many countries decided to unpeg their currency against dollar and gold. Forex or FX or forex market became a decentralized hub for currency trading. Currencies are bought, sold and exchanged at the live forex rate. FX is the largest trading market in terms of volumes traded. More than hundred thousand of forex beginners and traders have chosen stock trading capital as their forex service providers and open their forex trading accounts.

Who are forex brokers?

Forex broker or traders, tries to predict the direction of specific currencies in which prices of currencies may shift whether the price will go up or down, and traders decide if it is a right time to buy or sell the currency. Furthermore, the basic rule is to buy a currency at a lower price and then sell it a higher price to gain profits sounds easy but it is not a piece of cake. It is high risk investment and there are many factors involved. All the factors has to be evaluated perfectly before reaching a decision. One can make profit either on currency deprecation or appreciation. One of the best features of forex is that a trader can work from anywhere in the world. We are one of the best forex brokers in the market that will guide you in the whole process.

Learn trading risk free with a forex demo account

Stock trading capital offers a forex demo account to all the newbie traders who have developed a keen interest in trading currency. These demo accounts has been proven to be an excellent learning tool for beginners. Forex for beginners can be very challenging as there are many factors involved and it can also overwhelm the new trader moreover, beginners should know all the strategies before working in the live forex market. With a demo forex trading accounts you can begin your trade without putting your money at risk. We are one of the best forex brokers

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Forex for beginners

One of the best things about forex is that investors don't need to have a lot of capital to get started. They can begin their trade with few couple of dollars and predict the direction of the currencies. Furthermore, traders can trade at their own term which means that they can trade at any time or from anywhere in the world.

Forex market is open 5 days a week and traders can get their forex trading accounts and begin the trades. Moreover, there are many opportunities in the market and around 4 trillion dollars are traded each day. However, forex for beginners need to have proper strategies since if the price of one currency is depreciating there is another currency whose value will be increasing so there is always a chance to make profits.

How much money can I make forex day trading?

Julie bang @ the balance 2021

Many people like trading foreign currencies on the foreign exchange (forex) market because it requires the least amount of capital to start day trading. Forex trades 24 hours a day during the week and offers a lot of profit potential due to the leverage provided by forex brokers. forex trading can be extremely volatile and an inexperienced trader can lose substantial sums.

The following scenario shows the potential, using a risk-controlled forex day trading strategy.

Forex day trading risk management

Every successful forex day trader manages their risk; it is one of, if not the most, crucial elements of ongoing profitability.

To start, you must keep your risk on each trade very small, and 1% or less is typical. this means if you have a $3,000 account, you shouldn't lose more than $30 on a single trade. That may seem small, but losses do add up, and even a good day-trading strategy will see strings of losses. Risk is managed using a stop-loss order, which will be discussed in the scenario sections below.

Forex day trading strategy

While a strategy can potentially have many components and can be analyzed for profitability in various ways, a strategy is often ranked based on its win-rate and risk/reward ratio.

Win rate

Your win rate represents the number of trades you win out a given total number of trades. Say you win 55 out of 100 trades, your win rate is 55 percent. While it isn't required, having a win rate above 50 percent is ideal for most day traders, and 55 percent is acceptable and attainable.

Risk/reward

Risk/reward signifies how much capital is being risked to attain a certain profit. If a trader loses 10 pips on losing trades but makes 15 on winning trades, she is making more on the winners than she's losing on losers. This means that even if the trader only wins 50% of her trades, she will be profitable. Therefore, making more on winning trades is also a strategic component for which many forex day traders strive.

A higher win rate for trades means more flexibility with your risk/reward, and a high risk/reward means your win rate can be lower and you'd still be profitable.

Hypothetical scenario

Assume a trader has $5,000 in capital funds, and they have a decent win rate of 55% on their trades. They risk only 1% of their capital or $50 per trade. This is accomplished by using a stop-loss order. For this scenario, a stop-loss order is placed 5 pips away from the trade entry price, and a target is placed 8 pips away.

This means that the potential reward for each trade is 1.6 times greater than the risk (8 pips divided by 5 pips). Remember, you want winners to be bigger than losers.

While trading a forex pair for two hours during an active time of day it's usually possible to make about five round turn trades (round turn includes entry and exit) using the above parameters. If there are 20 trading days in a month, the trader is making 100 trades, on average, in a month.

Trading leverage

In the U.S., forex brokers provide leverage up to 50:1 on major currency pairs. for this example, assume the trader is using 30:1 leverage, as usually that is more than enough leverage for forex day traders. Since the trader has $5,000, and leverage is 30:1, the trader is able to take positions worth up to $150,000. Risk is still based on the original $5,000; this keeps the risk limited to a small portion of the deposited capital.

Forex brokers often don't charge a commission, but rather increase the spread between the bid and ask, thus making it more difficult to day trade profitably. ECN brokers offer a very small spread, making it easier to trade profitably, but they typically charge about $2.50 for every $100,000 traded ($5 round turn).

Trading currency pairs

If you're day trading a currency pair like the USD/CAD, you can risk $50 on each trade, and each pip of movement is worth $10 with a standard lot (100,000 units worth of currency). therefore you can take a position of one standard lot with a 5-pip stop-loss order, which will keep the risk of loss to $50 on the trade. That also means a winning trade is worth $80 (8 pips x $10).

This estimate can show how much a forex day trader could make in a month by executing 100 trades:

Gross profit is $4,400 - $2,250 = $2,150 if no commissions (win rate would likely be lower though)

Net profit is $2,150 - $500 = $1, 650 if using a commission broker (win rate would be like be higher though)

Assuming a net profit of $1,650, the return on the account for the month is 33 percent ($1,650 divided by $5,000). This may seem very high, and it is a very good return. See refinements below to see how this return may be affected.

Slippage larger than expected loss

It won't always be possible to find five good day trades each day, especially when the market is moving very slowly for extended periods.

Slippage is an inevitable part of trading. It results in a larger loss than expected, even when using a stop-loss order. It's common in very fast-moving markets.

To account for slippage in the calculation of your potential profit, reduce the net profit by 10% (this is a high estimate for slippage, assuming you avoid holding through major economic data releases). This would reduce the net profit potential generated by your $5,000 trading capital to $1,485 per month.

You can adjust the scenario above based on your typical stop loss and target, capital, slippage, win rate, position size, and commission parameters.

The final word

This simple risk-controlled strategy indicates that with a 55% win rate, and making more on winners than you lose on losing trades, it's possible to attain returns north of 20% per month with forex day trading. Most traders shouldn't expect to make this much; while it sounds simple, in reality, it's more difficult.

Even so, with a decent win rate and risk/reward ratio, a dedicated forex day trader with a decent strategy can make between 5% and 15% a month thanks to leverage. Also remember, you don't need much capital to get started; $500 to $1,000 is usually enough.

The balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

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