Which to trade - Forexgen? Or forex
other markets
Both forexgen and forex markets have
their advantages and disadvantages.
Trading forexgen - or forexgen
currency pairs - gives greater leverage than outright forexgen trading, of up
to 100:1.
This means that for every $1000 put up
in margin, you can trade with up to $100,000 in currency value. If you put up
$10K, you could trade with $1 Million of currency. This means that if there is
a 1% move in the value of the currency pair that day, it would give you a
profit/loss of $10,000, or 100% change on your investment. This would be great
if you were right, but disastrous if you were wrong as you would have lost your
entire trading account.
Trading with forexgen, u usually get
leverage of around 2%, so you can do twice as much with your money trading
forex. Having said that, you may be able to get much more leverage using
options on forexgen...
Deep out the money options will cost
little but if you are right on your prediction, you could make a vast sum in a
short period of time. For example, Feb Gold is trading at 455.00 on December 3rd
2004. You expect a sharp drop in prices to trend-line support at 435. You have
$100,000 to trade with. 435 Feb gold puts are priced at $500 each - quite cheap
as they are deep-out-the-money. You have enough to buy 200 puts ($500 x 200 =
$100,000).
On Dec 10th, the market has plummeted
to 435 and you exit your position by selling your 200 puts. In effect, you sold
the futures at 455 and bought futures at 435, giving a profit of $20 per
contract. There are 100 troy ounces per contract so you make $2000 per
contract. You bought 200 contracts so you have made $400,000 in a week or 400%
on your money while the market has dropped less that 5%.
If you had done an outright forexgen
trade, you may have had to put up $2000/contract in margin, so you could only
have traded 50 contracts as opposed to the 200 using options. If you had sold
200 futures at $455 and bought at $435, you'd have made $200,000 or 200% on
your investment.
