What is margin trading?

For profitable trading in financial markets, traders will need hundreds of thousands of dollars of personal funds. But to earn on the stock exchange can and those whose deposit does not exceed a thousand pairs. It's all in the margin.

Margin trading is a process of Exchange operations using borrowed money broker (margin). Margin trades make up the main type of operations on Forex and futures market. On the stock market margin is used less frequently, but it is mandatory for opening short positions on shares.

Meaning of margin trading

The main feature of margin trading is purely speculative. When you open a margin account punter plans to make speculative transactions with the obligatory reverse operation, respectively, are not interested in the asset itself nor a trader nor broker. This means that if a trader is buying dollars for Yen, he must in the future to sell those dollars for Yen for profit or loss. In this case, the margin is a means that the trader leaves the broker as collateral in Exchange for leverage.

Forex brokers offer a whopping size shoulders: a market participant can open an account with financial institutions at the level of 1:400, therefore, purchase a full lot ($100 000000) it will need a deposit of $250. Bail is an amount a broker "freezes" in the account and that the trader will be returned after the closing date. In order to maintain a position on the deposit must remain free, which will be deducted from the loss on the transaction. If funds run out, the broker closes a deal to avoid own losses. Thus, the financial result is returned by the operation of the Exchange margin plus funds earned on price movements.

On the stock market margin is used otherwise. 6. by opening an account at the Exchange, a trader can specify its type:

  • the money, which it will store exclusively own funds and use them to purchase assets;
  • margin, which presupposes and broker credit funds used for opening short positions without the coatings.

Trading in the stock market is not available for all securities. If levirdzh is still available for specific shares, then it usually is set at 1:2.

The nuances of the use of the term

The meaning of the term "margin" varies from market to market. Margin stock market is the credit which the broker issues a trader to buy securities or opening short positions. For the use of the credit in this case charged that hold long-term positions can be a substantial amount.

Margin in the futures market is a guarantee, that is. Unlike a loan, collateral does not require payment of any commissions or remuneration to the broker. Participants in the futures market and currency traders can use leverage completely free of charge. However, when trading derivatives used a fixed level of leverage, which is specified in the specification of a specific contract (usually at a rate of 1:6.67 or 1:10).

The risk of margin trading

As in the case of consumer credit, margin trading tightens and lulls. Trading on borrowed funds without using the principles of money management, the trader risks zaigratsja and merge the deposit sellouts. If the marginal operations strain the deposit, at the player will have to make additional funds, which it may or may not be. Such a situation can turn into a vicious circle of lending, so it's important to market intelligently distribute their funds and used for trading only the money he can afford to lose.

Margin call-this is a critical situation when the broker requires make for additional funds, otherwise the transaction will be forcibly closed. Typically, brokers set the margin call at the level of 20-30% of the security deposit. For example, a trader on the account was $400. He bought a lot of currency with shoulder 1:400, broker "froze" in his account a deposit of $250 and free funds $150 left. When buying a whole lot each PIP is worth $10.

A slight movement at the level of 15 points not in favor of the trader will result in the loss of "eat" all available funds on deposit, however, the position is still open, and losses begin to be deducted from the deposit. Once the pledge only 20%, i.e. $50, the broker raises margin call, and if the trader will not be able to make additional money on the account, it will stop out-compulsory closing of a position. In this case the trader will remain just a $50.


Margin trading is a double-edged sword, who need to know how to use. In the hands of novice leverage turns into a dangerous toy, which can easily cause yourself harm. An experienced player who is familiar with the safety precautions and the principles of money management, uses a margin to increase profits.

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Автор статьи: Максим Миллер - о авторе.
Бизнесмен, инвестор, финансовый консультант Facebook
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