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What is capital in Forex: the size and usage
What is capital in Forex: the size and usage

Expending one's knowledge of the basic aspects of trading, every novice trader will face the question of what capital in Forex is. There are two ways to approach the topic: if there are open positions in the market, and in case of their absence. Let us consider both situations.

An explanation of the term 

A trader's capital in the financial market equals the total value of his or her trading account. If the player has not opened any position, the amount of capital will be equal to the actual balance. If one or more positions are open, it is wrong to estimate the capital only using the balance. You will also have to take into account the margin, which shows the amount of collateral that a trader has provided to his or her broker when using leverage to trade more lots.

The amount of capital can be affected by the profits earned and losses incurred, which characterize a closed position. Those ​​are called floating values since they cannot be estimated in advance.

Deepening an understanding of what capital in Forex is, you can also point out the fact that the term is used as a key characteristic of leverage. Experienced market traders insist that your capital in Forex should exceed the margin used for trading. Otherwise, you will run the risk of losing all the money every time entering the market.

Capital usage

Even for a novice trader, it is important to constantly keep the situation under control and think ahead about everything that may happen. Therefore, having understood what capital in Forex is, you should learn how to manipulate the tool and use it in your calculations.

When entering the market, it is better to use a margin that will be lower than your capital. In such a case, you have a better chance of increasing the latter. If the market moves against you, the amount of capital can quickly fall below the margin level. In such a case, it is almost impossible to keep your positions open. Moreover, all losing trades will have to be closed immediately to achieve a relative balance and cut the losses, thus protecting the broker's capital from losses.

Very often brokers themselves set a percentage limit, which acts as a base value for closing a trade automatically. For example, if a broker sets the margin level at 40%, it will mean for a trader that as soon as the capital is equal to 40% of the margin level, the broker will have the right to immediately close all losing trades prioritizingthe largest floating loss available.

How much money do you need to get started in the financial market

Having understood what capital in Forex is, most beginners have a question: "How much money do I need to start a successful trading career?" To determine the amount of the initial capital, you should take into account several factors:

  1. What kind of trader would you like to be, technical or fundamental?
  2. Do you have any experience of at least demo trading?
  3. What is your strategy? Is it based on long-term or short-term trades?

The list is endless. Therefore, the issue of the first deposit should be taken very seriously. The most rational solution is to start using a demo account for trading. In this case, you choose a completely safe and loss-free way of acquainting yourself with the financial market, finding a behavioral strategy that is suitable for you, putting the set of actions to practice, and gaining confidence.

When exploring what capital in Forex is, you will understand that the size of the first deposit should be affordable for you. It should not be money borrowed at interest since the financial market is volatile and unpredictable. And besides, do not forget a few basic facts about Forex:

  1. Big players trade in the market alongside beginners with minimum deposits.
  2. Using high leverage you can make a decent amount of money even with a minimum initial deposit.
  3. There is a low market entry threshold.

Despite loyal market entry conditions, always remember that you should not trade using more funds than you can afford. For novice traders in the market, the optimal risk per trade is 1 percent of your balance.

A good understanding of what capital in Forex is will help a trader to properly organize his or her activities in the financial market, effectively structure it and avoid the disaster called a margin call.

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