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/// Common Forex Terms: Margin

07 Aug / 2013
Author: champ Comments: 0

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It is very important to understand how margin works in the forex market. When you use the margin account in forex trading, you are basically borrowing money from the market maker or the forex broker in enhance the return on investment. If you wish to invest in the forex market and make profits, first you should sign up with an authorized forex trading broker or an online forex trading discount broker. When you sign up with the forex broker or online broker, the broker would help you in setting up a margin forex trading account in your name.

However, you should initially deposit the margin amount agreed between you and the broker in your forex margin account before you start placing forex trades with the broker. The amount would vary according to this mutual agreement but for currency trades of 100,000 units or more, the percentage of margin money is usually 1% or 2%. Hence, you should deposit $1,000 with the broker to trade a $100,000 account if the margin money is 1%. The broker would be funding the balance 99%.

However, the broker would be issuing a margin call if your losses accumulate to more than $1,000 and you would have to deposit the amount that the broker initiates as margin call. Otherwise, you could close out your position, bearing the losses and paying the loss amount to the broker. Hence, margin trading in the forex market has got its own advantage and disadvantage.

 




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