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What is margin trading, or leveraged trades?

How can I trade in the Forex market, if I do not have 100,000 dollars? You need a Forex broker.


TRADING WITH A FOREX BROKER

You buy and sell currencies not on your own, but by submitting trade orders to your broker. The broker executes a transaction, using his or her own capital. However, if your order is executed successfully, you shall be held responsible for both gains and losses, resulting from the opposite order (predictably, after a purchase there will ensue a sell order). Furthermore, your margin account will change continuously, together with fluctuations in exchange rates, until your position is closed.


MARGIN, OR MARGIN ACCOUNT

How can a broker protect him/herself in case the market reverses against your position? It is done in the following way: in order to open a position (i.e. either to buy or sell a standard lot of one currency for another currency), you need to deposit a certain collateral, also known as a margin. The standard value of a margin, required for one position, is 1% of the transaction value. Your current gain (loss) will automatically be deposited to (deducted from) your margin account. If your margin account stops meeting margin requirements (e.g., the account goes down below USD 1,000 if you have only one EURUSD position opened), a broker has the right to close either one position or all of them at his/her own discretion, to prevent your margin account from going negative.


Margin is collateral, required to open and maintain trading positions.

Margin trading is a trading technique, which allows a market participant to trade volumes much higher than his/her own funds.

Leverage is a correlation between a required margin (borrowed money) and the transaction value.