Margin Trading

Trading on the Internet does not always involve buying or selling a real product. In the frequency, this applies to trading on currency exchanges, where, when buying or selling currency contracts, traders earn a exchange rate difference. To conduct speculative transactions in the Forex market, there is no need for large financial investments.

Any currency transaction is carried out on a short loan basis. The deposit, which in this case is provided by the trader, is called the margin. Marginal loan differs from simple by its size, which exceeds the margin several times.

Margin trading - is the conduct of operations for the purchase and sale of currency (assets) using a virtual loan, which is provided to the trader on the security of the previously agreed amount (margin) placed on the deposit with the brokerage firm.

The ratio between the funds that a trader receives in a loan in the dealing center, and his own is called the shoulder. Marginal transaction due to the effect of the financial "lever" (shoulder) allows you to receive income that is much higher than what you could get using only your own funds.

Margin trading allows, with the availability of profit, to increase it both on an increasing and in a decreasing market. The operation is considered complete if two mutually final transactions are carried out: for example, if some volume of a certain currency was bought (opening a position), then the trader should sell it (closing the position) after a while, and vice versa. The final result of the position closing is the difference between the purchase and sale prices. At the same time, the result of the closed transaction is added to the released margin margin: with its positive balance, the amount on the trader's account will exceed the collateral, otherwise the loss on the transaction will be deducted from the pledge.

Naturally, transactions are not always successful, but at most at most, the risk of a trader is his deposit. The broker controls not only the conclusion of the transaction, but also accompanies it. If the loss on it approaches a critical one, the trader receives a notice about the need to increase the amount of collateral, the so-called margin call (in translation, the margin requirement).

Margin trading, thus, gives traders not only the opportunity to manage profits by increasing the deposit, but also limits the risk of losses.

The main difference between a marginal transaction and operations using a conventional loan is the absence of any funds that a broker is required to use for a loan. Moreover, the risk of the trader is limited by the funds brought in to the broker's accounts. This means that if the broker at sharp jumps of the price in the market does not manage to close the transaction on a margin call and its loss exceeds a margin, i.е. The amount of collateral, then the loss is borne by the broker himself.

Marginal trading assumes only the right of the trader to dispose of specific assets, that is, to buy or sell. Usually this is enough to carry out speculative operations, because the trader is only interested in the difference in the price of the goods, and not himself. I must admit that such a trade, which does not require the actual delivery of goods, leads to a significant reduction in the overhead costs of traders.

The use of leverage increases the trader's trading capital. Even if the trader has only 1% of the contract size, still this method will allow him to make money on the difference in exchange rates.

Marginal trading contributes to a sharp increase in the volume of operations on the market. Although, as a result, risks increase, but with the volume of transactions, the nature of the market also changes, it becomes more liquid.