Fx market is world’s largest financial market and it deals with a lot of things. It also offers lucrative options to the traders joining. This makes business profitable and attractive. It is evident that provides an opportunity to trade 10 to 200 times the value of the deposit in any currency pair.
It is possible through fx trading. Do you want to know more about this unique concept? If yes then scroll down and go through this post as you will get to know about forex margin definition and much more here.
Forex margin definition
This is the difference between a selling price of a product or any given service and its cost of production. It can also be referred as the sum of equity funded as a share of the present market price of securities held in an account.
In terms of investing, margin definition in forex can be explained as the practice of buying an asset where the buyer only has to pay a percentage of the asset value and lend the rest either from a bank or a broker.
For an instance, say you want to buy a $10,000 worth futures contract using trading and the margin given to you is 20%. In this case, you also have to pay $2,000, the rest you can easily occupy.
Let’s cite an example to understand the concept properly
Suppose a trader is offered with 50:1 and the required margin to make this trade is 2%. In simple words, he is required to have $2,000 in his/her account to trade every standard fx contract.
The formula for margin is:
Margin = 100 / leverage
What do you mean by buying on forex account?
Before explaining this context, it is important to state that fx margin should be handled properly, and one should be well aware of forex margin definition.
Buying on margin is the purchase of an asset by allowing the margin and lending rest of balance from a bank or a broker. It can also be referred to as the initial payment made for the asset being purchased by an depositor.
When it is about margin, most worried about margin call which is one of the most important aspects of trading. So let’s understand.
Call can be explained as the demand using margin to deposit additional securities in order to bring up to the minimum margin maintenance. Most of the traders get a margin call when equity or value of securities present in the account falls below maintenance margin. A margin call is so effective that it forces the traders to square the position or to add more cash to his account.
So, whenever you enter market, you should be aware of these technical things in order to avoid huge losses in your career.
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.