Some questions from babypips

[tomhunter]

Hey

Ive been looking at babypips.com and ive got some things i dont understand, i was woundering if anyone could please help me out:

"Example #2
Let’s say you open a regular Forex account with $10,000. You open 1 lot of the EUR/USD, with a margin requirement is $1000. Remember, usable margin is the money you have available to open new positions or sustain trading losses. So prior to opening 1 lot, you have a usable margin of $10,000. After you open the trade, you now have $9,000 usable margain and $1,000 of used margin.

If your losses exceed your usable margin of $9,000, you will get a margin call.

Make sure you know the difference between usable margin and used margin. "

Do brokers not let you sustain losses through the $9k usable margin and into the $1k used which i supporting this lot? Is there a reason why they don't?


What does this mean:

"In the Forex markets, the U.S. dollar is normally considered the “base” currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British pound, the Euro, and the Australian dollar."

So is this saying all trades effectivly have the USD as base and if so why?

This leads me onto my final question which is prehaps created by my lack of understanding for the previous one:

"Bid Price
The bid is the price at which the market is prepared to buy a specific currency pair in the Forex market. At this price, the trader can sell the base currency. It is shown on the left side of the quotation.

For example, in the quote GBP/USD 1.8812/15, the bid price is 1.8812. This means you can sell one U.S. dollar for 1.8812 Pounds. "

This seems to say its going to sell the base and then sell the quote for the base?

Thanks alot,
All help greatly appreciated
Best Regards

 

[Rhody Trader]

"Example #2
Let’s say you open a regular Forex account with $10,000. You open 1 lot of the EUR/USD, with a margin requirement is $1000. Remember, usable margin is the money you have available to open new positions or sustain trading losses. So prior to opening 1 lot, you have a usable margin of $10,000. After you open the trade, you now have $9,000 usable margain and $1,000 of used margin.

If your losses exceed your usable margin of $9,000, you will get a margin call.

Make sure you know the difference between usable margin and used margin. "

Do brokers not let you sustain losses through the $9k usable margin and into the $1k used which i supporting this lot? Is there a reason why they don't?

You would not receive a margin call (or get automatically closed out of your position) until you lose more than $9000, meaning you have less than the requisite $1000 in your account.

What does this mean:

"In the Forex markets, the U.S. dollar is normally considered the “base” currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British pound, the Euro, and the Australian dollar."

So is this saying all trades effectivly have the USD as base and if so why?

To say that the USD is always the base is wrong. Against the JPY, CAD, and CHF it is, but not against the EUR, GBP, or AUD among the majors.

The base currency is the first one listed in a pair. When you are trading you buy or sell that currency, and therefor do the reverse to the quote pair (listed second).

For example, in the quote GBP/USD 1.8812/15, the bid price is 1.8812. This means you can sell one U.S. dollar for 1.8812 Pounds. "

This seems to say its going to sell the base and then sell the quote for the base?

No. It means you can sell 1 Pound and receive $1.8812.

 

[ChuckDillon]

My broker margin call

Hey

Ive been looking at babypips.com and ive got some things i dont understand, i was woundering if anyone could please help me out:

"Example #2
Let’s say you open a regular Forex account with $10,000. You open 1 lot of the EUR/USD, with a margin requirement is $1000. Remember, usable margin is the money you have available to open new positions or sustain trading losses. So prior to opening 1 lot, you have a usable margin of $10,000. After you open the trade, you now have $9,000 usable margain and $1,000 of used margin.

If your losses exceed your usable margin of $9,000, you will get a margin call.

Make sure you know the difference between usable margin and used margin. "

Do brokers not let you sustain losses through the $9k usable margin and into the $1k used which i supporting this lot? Is there a reason why they don't?


What does this mean:

"In the Forex markets, the U.S. dollar is normally considered the “base” currency for quotes, meaning that quotes are expressed as a unit of $1 USD per the other currency quoted in the pair. The primary exceptions to this rule are the British pound, the Euro, and the Australian dollar."

So is this saying all trades effectivly have the USD as base and if so why?

This leads me onto my final question which is prehaps created by my lack of understanding for the previous one:

"Bid Price
The bid is the price at which the market is prepared to buy a specific currency pair in the Forex market. At this price, the trader can sell the base currency. It is shown on the left side of the quotation.

For example, in the quote GBP/USD 1.8812/15, the bid price is 1.8812. This means you can sell one U.S. dollar for 1.8812 Pounds. "

This seems to say its going to sell the base and then sell the quote for the base?

Thanks alot,
All help greatly appreciated
Best Regards

I trade with FXCM and their margin call takes place before you can
go into a negative balance on your account. The rep. explained to
me that was the whole reason for the margin call was to protect
you from losing all your money. So maybe Baby Pips would do the same

Have a great day
Chuck Dillon

 

[Rhody Trader]

I trade with FXCM and their margin call takes place before you can
go into a negative balance on your account. The rep. explained to
me that was the whole reason for the margin call was to protect
you from losing all your money. So maybe Baby Pips would do the same

Have a great day
Chuck Dillon

BabyPips isn't a broker. It's a forex discussion forum similar to Trade2Win.

As to margin calls, they have very little to do with protecting your capital. They are all about protecting the broker - and the system in the case of very large positions.

 

[ChuckDillon]

Thanks Rhody

BabyPips isn't a broker. It's a forex discussion forum similar to Trade2Win.

As to margin calls, they have very little to do with protecting your capital. They are all about protecting the broker - and the system in the case of very large positions.

Thanks Rhody

Could you explain more about the margin calls and
maybe more on any protections for your account. it seems
that I could have been mislead or I didn't understand
what the rep. was telling me about my account.

Thanks
Chuck Dillon

 

[Rhody Trader]

I was being a bit sarcastic with my last response.

Think of margin like a down payment on a house. The bank requires you to put up a certain % so that you can borrow the money to purchase the property. That deposit serves to protect the bank or mortgage company against declines in the value of your house should you default your payments. They would still be able to get the loan value back buy foreclosing and selling the property.

A margin call serves the same sort of purpose for your broker. It protects them against the situation where your account goes negative because that basically creates a liability for the broker. That money has to come from somewhere, after all, right? If you don't make good on that loss, the broker is left holding the bag, so to speak. That's why I said it protects the broker.

Of course that mechanism also protects you from losing more than the money you put in to your account. It keeps you from losing more than your initial investement, which is always the risk when trading on leverage.

Does that help?