A lot of traders make use of margin and leverage. Even people that are yet to join the forex market already made a mental note to make use of these features of the forex market to make more profit than their trade capital can ordinarily make for them. In this post, we will discuss what a margin call is all about, and how to access it in trading the forex market.
WHAT IS A MARGIN CALL?
A margin call is a request made by a broker to a client asking the cline to deposit additional money or security into the margin account in order to bring it to minimum maintenance margin. Before a trader can get a margin call from his or her broker, the trader must have a margin account. Basically, a margin account is like a short term loan from a broker to a client. It has a lot of similarities with an equity account where one is required to have a certain amount of money in his or her account in order to continue enjoying the benefits of the account. So after a trader might have spent a part of his or her capital trading the forex market, there is a likelihood that the required amount of minimum in the margin account can be tampered with.
Sometimes, the trader does not need to out rightly spend the money from the margin account before receiving a margin call from a broker. A margin call can be placed to a client on the event that the security in the possession of the trader reduces in value past a certain point. What the investor is expected to do in this case is to sell off some of the assets, or deposit more money into the account.
BENEFITS OF MARGIN TRADING IN THE FOREX MARKET
It is advised that upon receiving a margin call from a broker, the investor should make efforts to meet up with the requirements or they will lose out of the benefits of margin call trading in the forex market. Some benefits of margin cal trading in the forex market are
1. It allows the trader to leverage his or her gain. This means that the trader can hold a position much more than his or her capital can secure. That way, the trader gets more gain than the capital is ordinarily entitled to in the case of successful trades.
2. Since it is a loan, a trader can take advantage of trading opportunities as they arise, even when the cash is not readily available.
3. A margin account can help a trader to effectively diversify or hedge his or her portfolio
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.