Margin leverage

Margin leverage

Margin leverage

Most traders today use margin leverage in their work. This is the same as leverage. The essence of it is that the trade uses not only their own, but also borrowed funds.

This type of credit is available to all clients of any broker offering margin leverage. You don't even need to make a request or provide any documents. After registering with the company, you will be asked to choose the amount of leverage.

Depending on the broker and the country, it may be different. For example, the margin leverage offered by brokers working on stock exchanges starts from½. companies that provide Forex services offer up to 1/1000.
Margin leverage and features of its use

This service is provided completely free of charge. You will not have to pay any commissions for using margin leverage. This is one of the important features of using such a loan.

In addition, margin leverage is issued to any client of the broker. And this is another important nuance. You will not have to apply to the Bank for a loan to expand your trading opportunities.
The advantages are obvious. Not every Bank will give you a loan. In addition, financial institutions will have a negative attitude to issuing loans to those who want to trade on the financial markets. You will be required to provide additional financial security in case you fail.

Finally, getting a loan from a Bank is not a matter of one day. You will have to collect documents, search for banks with the best conditions, and so on. Margin leverage saves you all this trouble.
Some traders say that such a loan from a broker is a significant risk. And this is true. Poor use of such an aspect as margin leverage can lead to really serious negative consequences.
Features of using margin leverage on the stock market

Trading with margin leverage on Forex and the stock market has some special features. If you buy securities, the broker will never give you a loan in the ratio of 1/100 for example. The maximum size of up to¼.

At the same time, all risks are transferred entirely to you. If your leverage is equal to ½ and you bought shares, then when you change by one ruble, you get two rubles already. But if the market sinks, for example, by two percent, then you lose four percent.

In other words, the broker does not risk its borrowed funds at all. All risks are fully transferred to the trader's shoulders. Therefore, trading with margin leverage requires a specific approach to capital and risk management.

After all, if the drawdown is 50%, then with a leverage of½, you will lose all your funds and the account will be reset to zero. Also. Stock brokers charge commissions for using leverage. And you pay them daily.
Forex and margin trading

You can also trade using leverage on Forex. And here the situation is somewhat different. 1 lot on the international currency market is 100,000 units of currency. Accordingly, if you have a Deposit of one thousand us dollars, and the Euro-dollar exchange rate is 1.0500, therefore, for $ 105,000, you can buy 100,000 euros.

What should be the collateral for the broker to give you the opportunity to open a deal? Here everything is quite simple to calculate. If you take a leverage of 1/100, divide 105,000 by 100 and you get 1050 US dollars. Therefore, to buy one lot, you must have a little more than a thousand dollars in your account.

The vast majority of brokers offer leverage in the range of 1/100. For some companies, this figure can reach 1/1000 or even higher. But the fact is that such brokers do not inspire confidence, since they most likely work on the principle of digital DC and do not bring transactions to the market (or to liquidity providers).

In many Western countries, leverage is set by the regulator. Sometimes it does not exceed 1/25. Thus, the Forex regulator, firstly, automatically reduces the risks of traders, and secondly, restricts access to the market for those who can not afford trading.

Why is high leverage considered a high risk? The fact is that it allows you to open a large number of positions. On the one hand, this is an advantage, especially if the market goes in the direction of the trader. But if the market goes against the forecast, the so-called margin call (the requirement to provide additional collateral) comes much faster.

Much depends, of course, on your risk and capital management system. If it is balanced, you have little chance of losing money even with a high trading leverage. If a trader does not know how to manage the money that they have in their account, even low leverage will not help.

Comments (0)

    Top