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Forex Margin

By Edited Nov 13, 2013 0 0

A forex margin is something that is used by numerous forex traders on a daily basis to leverage their initial investment so that they are able to make larger currency trades. A forex margin is most often used when a particular currency trader opens what is considered a forex margin account. Once the forex margin account is opened the trader then has the ability to gain access to additional funding that can be used when they trade currency—this essentially means that the trader is getting a short-term loan from the brokerage that they have opened the margin account with. The money that the brokerage provides the investor is usually based upon the trader's investment that they have deposited into their account. The brokerage can then allow the trader to utilize sometimes above twenty times what they have available in their account, and this is the advantage to trading on a margin—as a currency trader you can leverage your bankroll at a very high proportion while not having to worry about securing such funding.

Sometimes it is not easy to picture what forex margin trading really consists of without the use of examples. A typical case of a currency trader utilizing a forex margin would involve them making a deposit into either an online brokerage account, or with a more conventional forex broker. It does not really matter what the trader chooses as long as either the online brokerage or forex broker can accommodate the trader's use of margin. Once the money is within the brokerage account the trader can then utilize up to the percentage in margin that he and the particular brokerage he is doing business with previously decided upon. It is common for this percentage to be between one and five percent, although five percent is a bit on the high side according to most standards. If for example the trader and broker agreed upon a two percent margin percentage, and the trader deposited one thousand dollars into the account, then he would have access to fifty thousand dollars worth of capital to trade with. If the trader begins to lose money then the broker may perform what is considered a margin call, as this will require the trader to either deposit more money into their account, or close out their position so that both he and the broker don't get burned.

Essentially the deposit that is initially made by the trader is used by the broker as a security, and if the broker cannot maintain a profitable position then the broker will not hesitate to fall back on this money unless the trader's positions improve. Sometimes it is wise as a trader to use a forex margin calculator that your brokerage may or may not be able to provide you so that you can closely monitor your margin percentage to see if you are treading the line on a particular account and thus may be very close to a margin call. When using a significant margin it is always smart to find a broker, or brokerage that is easy to work with, and one that has a very good reputation within the forex community. You are in a sense taking on a sort of partnership with the broker you decide to do business with, and every time you utilize their margin both you, and the broker will make money if you can successfully utilize such funding to make a higher profit. You don't want to experience difficulty trying to communicate to a particular broker or brokerage when you need to make changes on your account, or when you have to make an additional investment or trade, and this is why it is essential that you find a good broker. Once you do you will be able to hopefully use your forex margin to increase your leverage and then subsequently make more money, and if you can do this then you can feel good about your ability to handle the responsibility of such capital.

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