When you open an account at your broker, you will have a minimum amount required. This is called as an account margin or commonly known as the initial margin. Soon after you deposited some amount of money as required to your account, you will be able to start trading in forex market. The other requirement stated by your broker from the beginning will be the number of equity needed to trade, or commonly known as lot.
Before you are taking further step in trading, you need to carefully read the margin agreement. Margin agreement here is a loan. This is something that you should never forget. In this agreement, they will state some important points like the calculation of interest of your loan, the responsibilities to pay the loan back, and also the collateral of your loan in the form of the securities you have bought. These things must be carefully read and understood before you decided to sign up. Most of all, notice if your firm will give you any warning before they sell your securities to collect money that you borrowed from them. It often happens that the broker liquidates the securities without giving any notice to the trader.
To some extent, margin can help your power of buying. For example, if you only have $5,000 in your account and the leverage level is 100:1, you can take any position up to $500,000. It is possible because the collateral required is only 1% of the purchase price. This can be a great advantage for those with small accounts, because it is enable them to get greater profit. However, this can also be a great disadvantage if the market moves against you. Your reversed position can result in the liquidation of your account, partially or even completely. Again, you must remember that your broker can make a margin call without giving any notice to you. To this very reason, you need to monitor the chart movement, so that you will always know the position of your margin. One solution to minimize the risk is by using the stop-loss orders whenever you take any position.
Finally, margin should be used wisely. It can be a powerful and helpful tool to gain greater profits, but it can also be your nightmare if the market moves against your position.
Bookmark/share this article with others:Before you are taking further step in trading, you need to carefully read the margin agreement. Margin agreement here is a loan. This is something that you should never forget. In this agreement, they will state some important points like the calculation of interest of your loan, the responsibilities to pay the loan back, and also the collateral of your loan in the form of the securities you have bought. These things must be carefully read and understood before you decided to sign up. Most of all, notice if your firm will give you any warning before they sell your securities to collect money that you borrowed from them. It often happens that the broker liquidates the securities without giving any notice to the trader.
To some extent, margin can help your power of buying. For example, if you only have $5,000 in your account and the leverage level is 100:1, you can take any position up to $500,000. It is possible because the collateral required is only 1% of the purchase price. This can be a great advantage for those with small accounts, because it is enable them to get greater profit. However, this can also be a great disadvantage if the market moves against you. Your reversed position can result in the liquidation of your account, partially or even completely. Again, you must remember that your broker can make a margin call without giving any notice to you. To this very reason, you need to monitor the chart movement, so that you will always know the position of your margin. One solution to minimize the risk is by using the stop-loss orders whenever you take any position.
Finally, margin should be used wisely. It can be a powerful and helpful tool to gain greater profits, but it can also be your nightmare if the market moves against your position.
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