The two most vital concepts of Leverage and Margin are very important concepts in Forex. Misuse of these concepts can easily cause concern. If the trader wants to trade using the money he has borrowed and has to make a deposit that represents part of the real value of the business. This deposit is known as a Margin or Goodwill Deposit. What is important here is that in most cases, if investors decide to leave the business, they will be able to withdraw the full amount of the deposit.
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Another important part in this regard is that if the strategy followed by a trader does not work and the trader starts to lose money, he may reach a point where the deposit is lost. The trader is in the Margin Call position. These are conditions where their margin falls below 50% (below the mandatory maintenance margin). In the event of a margin call, the broker asks the client to deposit the extra amount and allows the client to continue trading. This is a backup for Forex brokers where the trader finally pays his debt.
Let me explain with an example: In Forex, a trader can trade up to $ 100,000 and pay only $ 1,000. The lever in this case is 1: 100. The $ 1,000 that the merchant deposits into his account is considered the initial margin. This is what the trader has to pay to enter the market.
Remember, your margin is the money you give to your broker as a backup deposit. The brokerage wants these margins from everyone and puts them together to make huge transactions in the interbank network. The actual profit or loss you record in the market depends on the size of your trade.
The following is the question of what is Forex Margin Trading?
The volume of transactions in interbank transactions is estimated at millions and even billions of dollars. Banks and their customers are large multinational corporations, hedge funds and private investors, interbank market participants. This shows that the trading volume in this market is very high for most private investors.
With the advent of Forex brokers and trades that act as intermediaries between the trader and the market, online trading in the foreign exchange market became possible. By trading on the basis of a margin, a leverage that multiplies the amount of trading resources, investors can now enter the market with a capital of between $ 100 and $ 200. It has a very simple basis: the broker needs a specific deposit to provide leverage to his clients that enables them to trade large volumes with little capital. Customers only lose the amount invested if they face a loss. This type of trading is called margin trading in Forex or margin trading. Margin in this case is the collateral that the broker keeps to open trades with certain volumes of the client’s deposit.
Margin trading takes place in two stages: the first stage involves opening a trade and the second stage involves closing it. For example, if a trader expects the euro to appreciate against the dollar with the intention of selling the euro at a higher price in the future, he will buy it now. So the deal goes like this: buy the euro by opening a deal and sell it by closing the same deal. This transaction is called the “Euro Purchase Transaction”. On the other hand, if a trader expects the euro to depreciate against the dollar, then he sells the euro (opens the trade) to buy it at a cheaper price in the future (closes the trade). This transaction is called a “sell transaction”. In this way, and according to the above explanations, it becomes clear that in online transactions, profit can be gained from the fall and rise of the market.
As mentioned earlier, the Forex market is usually accessible to small clients through companies or intermediaries known as Forex brokers. Forex broker is a communication channel that provides live market rates and transmits client trading orders to the interbank market. Through these brokers, retail clients are able to access the Forex market without having a physical presence in the trading office. All they have to do is connect to the Internet and install the relevant trading platform on their personal computer, or tablet or mobile phone. This is how Forex trading becomes more and more available to the public.
It should be noted that it is very rare for exchange rates to fluctuate by more than 3 to 4 percent per day, and if transactions are done rationally, the possibility of losing a deposit becomes almost impossible. If the price fluctuates so much that the customer’s loss exceeds his deposit, then the broker can close the deal on his own behalf.
In short, trading in the margins is attractive because of its ease of access, as entering the market requires only 1 to 3% of the trading volume. The answer to the question “What is Forex Margin Trading?” It’s very simple: margin trading or margin trading is an opportunity for investors to open large trades for a small amount of money and increase their profit potential. It should be borne in mind, on the other hand, that the probability of loss will also increase, which is due to irrational trading due to not following advanced trading strategies.
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