Functions of foreign banks?
One function of foreign banks, which is especially important to
those who trade in foreign currency,is margin trade. Forex margin
accounts allow traders to control a large amount of currency with
only a small deposit. What is margin? In forex trading margin
accounts are expressed as a percentage. For example, a margin
account of 1% would give you 100:1 leverage. So with $100 you could
control $10,000 of currency. If the $10,000 of currency that you
buy increases in value, you get all of the profits - but if that
currency decreases in value, you are liable for all of the cost.
Many people are wowed by the profit potential, and don't stop to
think about what would happen if the trade went wrong.
Trading on margin increases your profit potential, but also
increases your risk of losses. Fortunately, most online FX brokers
will end a trade if it falls below the amount deposited, minimising
your losses - but you'll still have lost the money that you had
deposited, you just won't end up owing a lot more.
For more information on foreign banks and foreign exchange, see
the websites below.
