Trading on the forex margin trading is not a down payment on future purchases of capital, such as in trade the stock market, but payments to a merchant account that will cover it against any future trading losses. Typically, foreign currency trading to a high degree of leverage in its margin requirements, which can sometimes be as much as 200:1 times the value of the account.
the amount of leverage available in Forex trading is one of the main attractions in this market for many traders. Leveraged trading, or trading on margin, simply means that the account is not required to maintain the full value of the position.
One of the reasons for the higher leverage offered is based on a daily volatility of major currencies, which is often one percent or less. It is smaller than the active stocks, which can easily be five to ten percent move in one day.
With leverage, the account can capture higher returns on smaller market movement. Just as important, this leverage allows traders to increase their purchasing power and use less capital to trade. The downside of this is to increase the leverage increases risk. Depending on the broker, in some cases may not be margin calls on trading position, and your account will automatically be closed from all open positions if the account equity falls below the required margin level. This can be thought of as a final, automatic stop.
in trading with stocks trading on margin means that a trader can borrow up to fifty percent of the stock value to buy that stock. This means that an investor must pay interest on the broker on the amount borrowed. But this is not the case in Forex trading.
margin is the minimum balance required to place trade. When the account is opened, money deposited act as collateral for the trade done. This deposit, called margin, is typically one percent of the value of position.
As an example: if you purchase a $ 100,000 USD / CHF is at 100:1 leverage, money needed for a deposit for trading is one percent, or $ 1000. the other is $ 99,000 remaining substrate accounts. In addition, if a margin call is made, no interest is paid in foreign currency trading.
, when trading the forex market, it is important to note that increasing leverage increases risk. Account should be monitored regularly and stop-loss orders should be used on any open position in order to limit the downside risk involved.