Beginner’s Guide to Forex Trading: Understanding Account Balances
“What is ‘Account Balance’ in Forex Trading?”
To begin forex trading, gaining access to the trading platform is essential. This requires the initial step of establishing an account with a retail forex broker or CFD provider. Once your account is successfully approved, you can proceed to deposit funds into it. It’s crucial to emphasize that this account should exclusively contain ‘risk capital,’ money that you are comfortable with potentially losing.
The “Account Balance” or simply “Balance” is the starting balance of your account.
Basically, it’s the amount of CASH in your account.
Consider it in this manner:
Account Balance = Available Funds
Your Account Balance represents the total sum of available funds within your trading account. For instance, if you initially deposit $1,000, your Account Balance will read as $1,000.
If you initiate a new trade, often referred to as “opening a new position” in trader terminology, your account balance remains unchanged until that position is eventually closed. Therefore, your Account Balance undergoes modifications in one of three scenarios:
- When you add additional money into your account.
- When you finalize and close a trading position.
- When you retain a position overnight, which may involve either receiving or paying a swap/rollover fee.
While the primary focus here is on margin, it’s worth mentioning that swap fees can impact your Balance. It’s important to distinguish between short-term trades lasting only a few hours and trades that are held overnight, as this distinction is pertinent to the discussion.
The process of transferring open positions from one trading day to the next is known as a rollover. Most brokers automate this procedure by closing any existing positions at the day’s end while simultaneously initiating an identical position for the following business day. This rollover operation involves the calculation of a swap fee.
A swap is essentially a fee that is either credited or debited to your account at the conclusion of each trading day if you choose to maintain your trade open overnight. If you receive a swap payment, it will increase your Balance, whereas if you incur a swap charge, it will reduce your Balance.
This will be covered in more detail in another article at a later time. (LINK).
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