Forex or the foreign exchange market is a decentralized financial market that facilitates the trading of currencies from all over the world. As a trader, one of the important terms that you should be familiar with is “forex cash available”. In this article, we will explore what forex cash available means and why it’s important for traders to understand this term.
Forex cash available refers to the amount of money that a trader has available in their trading account to open new positions or trade with. This amount includes any profits or losses from previous trades, as well as any deposits or withdrawals made to the account. The cash available is calculated by subtracting the margin used from the total account balance.
Margin is the amount of money that a trader is required to deposit in their account as collateral to open a position. This margin is determined by the broker based on the size of the position and the leverage offered. Leverage is a tool that allows traders to open larger positions than their account balance would normally allow. However, it also increases the risk of losses.
For example, if a trader has an account balance of $10,000 and opens a position with a margin of $1,000, their cash available would be $9,000. If they close the position with a profit of $500, their cash available would then be $9,500. On the other hand, if they close the position with a loss of $500, their cash available would be $8,500.
Understanding forex cash available is important for traders as it helps them manage their risk and make informed trading decisions. If a trader doesn’t have enough cash available to cover their margin requirements, their positions may be automatically closed by the broker to avoid a margin call. This can result in significant losses for the trader.
Additionally, traders should also consider their cash available when deciding on the size of their positions. It’s important to ensure that they have enough cash available to cover their margin requirements and potential losses. Traders should also avoid overleveraging their positions, as it can increase the risk of losses and result in a margin call.
In conclusion, forex cash available refers to the amount of money that a trader has available in their trading account to open new positions or trade with. It’s calculated by subtracting the margin used from the total account balance. Understanding forex cash available is important for traders as it helps them manage their risk and make informed trading decisions. Traders should ensure that they have enough cash available to cover their margin requirements and potential losses, and avoid overleveraging their positions.
