1. What does "FX" stand for?

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1. What's FX?!

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 already. 
Here's a small thought: If you buy 100 EUR 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. 

2. Leverage

Let's think further about the previous example.
It is true that you got 6.4 USD, but it can barely buy a pint of beer, hah!

What about with 10,000euro? The profit you would get is 640 USD. 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". In finance, leverage 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 than you started with.

3. Margin Cut

However, having a possibility of earning 100 times - 200 times larger amount also 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 broker requires certain percentage of equity when you hold a construct. The ratio depends on a broker, but most of the cases, it ranges from 10%-100%.

Let's take an example of 50% with the situation we discussed. Your broker 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.

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