Posted on / Business and Finance

New Traders Must Understand Transaction Direction, Leverage, and Contract Size In Forex

In other types of trading, the direction of the profit that can be obtained is usually only one direction, between selling or buying when the price goes up or down. However, in forex trading, the benefits that can be obtained are in two directions, which is commonly referred to as a “two-way opportunity”. This means that you can still look for and get profit opportunities in every condition that occurs in the forex market, be it when prices go up or down. You can also decide your timing easily if you use buy sell bands indicators.

In forex, there are two types of transactions, namely, buy (buy) and sell (sell). Where buy transactions are usually often referred to as long and sell which is also commonly referred to as short. If the price is going up, you can do a buy (long) transaction to look for profit.

Conversely, when the price is down, then you can sell (short) to get this profit.

As for leverage, with this facility, relatively small funds or capital can make transactions with a much larger contract value. It will be easier to understand if this leverage is analogous to a “carjack”. With a jack, you only need a little force to be able to lift a car that may weigh more than 100 kilograms. The way leverage works in forex trading is more or less similar to how the car jack works.

For example:

You choose a forex broker that applies a leverage of 1: 100. So, to make a $ 100,000 transaction, you only need $ 1,000. The $ 1,000 is referred to as margin, while the $ 100,000 transaction value is called the Contract Size.

That is, the capital needed to start forex trading is only 1% of the amount of capital that should be owned.

Unlike the case with conventional forex transactions. To be able to trade forex for $ 100,000, you must provide capital with the same amount, namely, $ 100,000. In other words, the capital you need to be able to carry out conventional forex transactions through a bank or money changer is 100%.

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