Margin Trading Forex
Good to know each trader ► Margin Trading Forex
The desire to earn as much money in the Forex market is completely natural, and the foreign exchange market provides excellent opportunities for this. In order to attract the maximum number of participants in the market, brokerage companies dramatically reduce the size of the initial deposit is required to operate in the Forex market. In addition to private investors can get attractive returns, while working with their small deposits, has been created and has received universal distribution of so-called 'margin trading system. " If successful scenario, it helps to dramatically increase the potential profit, but the risks increase, no less, and even a small adverse market movement can easily reset the deposit. However, for the understanding of the need to understand the basis of this approach.
The meaning of margin trading is that the client, introducing his account a sum of money, the so-called "security deposit", is able to operate on the market amounts immeasurably greater than his own funds. Providing broker loan secured by the client money for operations in the international currency market is called "leverage dealing" or "shoulder", and the amount of the security deposit, which is available under the credit "margins". The limit value "shoulder" is set by each brokerage company independently, and, in fact, determined by the ratio between the collateral and allocated under its loan capital.
On the Forex market is usually the maximum "leverage" is 1: 100. If the balance of $ 5,000, when such a "shoulder" maximum position size is $ 500 000. At the back quote the maximum value of the open position is calculated based on the current quotes, for example: if you deposit $ 500 at the rate of EUR / USD 1. 3500 position can be opened size not more than 37 037 EUR.
V - The value of the position
K - 1 For direct quotes
K - The current rate for reverse quotes
D - The amount of the deposit
Define a "shoulder" the broker will be used when opening a position, you can multiply the value of the position's opening "K coefficient" and dividing by the amount of the deposit (V * K / D)
You must always remember that the "shoulder" the broker not only greatly increases the potential profit on the transaction, but also the potential losses if the deal was unprofitable. If the position was opened with a big "arm" the broker and the price went against the position, then it is likely that at some point it may be forcibly closed by the broker. The rules are, first double-broker sends an alert when the deposit begins to decline dangerously, this warning is called a "margin call."
If the trader does not take any response, not closed position, or reduce its size, then all transactions will be forced to terminate. The larger size of the "shoulder", the faster it reaches a critical level.
To avoid major trouble on such a volatile market as the Forex is only one effective means - Risk Management. It is based on - firstly, the maximum size of the "shoulder". Some professionals believe that the level of higher than 1: 5 is not allowed to trade in the forex. Secondly, an effective trading strategy, and steady adherence to its rules. It should also be noted that the margin trading system has one significant advantage - the trader will never be in debt to the broker, in the worst case, it waits for a zero deposit.
Margin trading stocks and bonds
Margin trading in the stock market has long existed. Professional investors and speculators desperate, uniting their efforts can shake a course of almost any security. The possibility of buying shares with the use of credit resources a powerful weapon in the hands of experienced players, but with the weapon must be handled carefully. Buying stocks on borrowed funds, under certain circumstances, can serve as a tool for the manipulation of rates, especially if the number of traded securities is not great. That is why is not every tool can be traded using "margin."
List of margin securities approved by the Federal Service for Financial Markets. The list includes securities of the relevant liquidity criteria. At the same time, each broker has the right to contract with the client to establish a list of securities that it may take as collateral. And although the overall margin trading conditions are the same for all brokers, but in reality they can significantly different, and it concerns, first of all, the volume of loans provided.
The value of "leverage" is calculated based on the amount of available funds on the account of the client, or the current value of the securities owned by him. Valuation is made only for the shares included in the list of liquid. The calculation is the best purchase price in the trading system at the time of evaluation. Different brokers charge a different amount of commission for loans and securities for lending money.
Margin lending allows customers to actively play on the market fluctuations, so it is possible and opens up additional long positions, obtaining additional profits when market growth, and conduct a short sale and make a market fall.
The stock market price changes Day are not great, and make a lot at once with a small amount in your pocket will not work. For the most greedy, or for those who are fully confident in its forecast, brokerage companies offer assistance. Leverage, the design of which does not require a lot of time…