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Have you heard about FX before? ...Probably you have, as you could get to this site.
However, it could be benefitial to know a little bit more about it although your primary interest is to "make an automatical trader".
FX stands for "Foreign Exchange", as you probably know.
If you buy 100 euro when EUR/USD = 1.2000 and sell it when the rate is 1.3000, you will get the profit of 6.4 USD (100/1.2-100/1.3).
Our site is here to help you do that automatically, and without much difficulty.
Let's think further about the example.
It is true that you got 6.4 USD, but it can merely buy a cup of beer, hah!
What about with 10,000euro? The profit you would get is USD640. Although it's not too bad, there still is a better chance for us.
The keyword is: Leverage. Leverage genenally means "power enhanced with lever". As a financial term, it means to trade larger amount of money than you deposited.
For example, you will be able to trade approximately $100,000-$200,000 as a maximum using your $1,000, which means you have a possibility of earning 100 times - 200 times larger amount.
However, having a possibility of earning 100 times - 200 times larger amount means having a possibility of losing it as well.
If you use 1:100 ratio as a leverage and buy EURO with your EUR1,000, the decline of EURUSD by 0.1 [EUR] result in the following equation:
- 0.1 x 1,000 x 100 = 10,000 [USD]
Betting EUR1,000 with the possibility of losing USD 10,000, which is obviously larger than the money you bet, is a tough deal for everyone.
But no worries! Fortunately we actually don't have to think about the case, thanks to the system called Margin Cut. Most of the bloker requires certain percentage of equity when you hold a construct. The ratio depends of blokers, but most of the cases, it ranges from 10%-100%.
Let's take an example of 50% with the situation we discussed. Your blokers requires that you have equity of EUR500 to hold a long (buying) position of 100,000 euros. (100,000 x 1/100 (leverage) x 50%)
Hence, the moment your loss exceeds EUR500 (1,000-500), your trader will close the deal automatically.