In Fx trading, two concepts are important to be understood that include margin and leverage. It is essential to know how money is funded in your account and how to execute the same to earn a maximum rate of return. In this regard, have to open a margin account to utilize the borrowed money.
What is a margin and margin account?
This is defined as the ratio of company’s revenues to its expenses. It measures the amount of money that is contributed and held in a account as a percentage of current market value of the securities.
While determining the used margin in Forex, it tells the value of lender’s price. More often, a broker act as a lender to account.
An account is also termed as a brokerage account. This is because the amount that is borrowed is utilized by the customer to buy securities. The rate of margin used Forex can be referred as money that is used by the trader to magnify profits. (Bad execution can magnify the amount of loss.)
For example, suppose has used margin in Forex as $1,000 as security. If investor’s position get worse to reach lost up to $1,000, then broker has to initiate a margin call. At this time, he will instruct to deposit more money or investor can close out his/ her position to limit the level of risk to both these parties.
What is used margin in Forex?
Investors who are interested in trading can use accounts to maximize the amount of return. In this regard, with the availability of short-term loan should start trading through an account. It is suggested that amount of leverage that is taking on should be equal to amount of loan.
Now, investor has to deposit fund into the account to place a trade. The amount will depend on margin percentage. This percentage will be either 1% or 2%. Broker will deposit the remaining amount, and no interest will be paid on this borrowed amount. In fact, interest may be charged as per the position of the trader’s investment for used margin in Forex.
For example, for an investment on a trade of $100,000, investor has to pay 1 – 2 % as per the terms and conditions which are liable. If the investment is agreed to 1%, then has to deposit $1,000 in the account. For the agreement of 2%, investor has to deposit $2,000 in the account.
Are you a beginner in Fx market? You should remove your dilemmas with the possible support of experts. To make your trade profitable, one should follow margin used Forex strategies.
In a bid to earn maximum profit, should not lose his/ her path in the mid-way. In this prospect, it is important to give time to understand the flow of the market before investing.
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.