Leverage & Margin

It is noted that the amount of trading contracts is relatively large, and in order to achieve a good profit you will have to have a large amount of trading, and to solve this problem the brokerage firms to provide service for traders known as (Leverage), is the possibility of trading doubles top of the owner and the increased purchasing power of capital.

And brokerage companies provide different sizes of leverage and the most famous:

1:50

1:100

1:200

1:400

Means (1:50) that every dollar of its purchasing power is equal to $ 50, 1:100 means that every dollar of its purchasing power is equal to $ 100, and so on.

How does leverage work?

You can understand the leverage through the following example:

 Head of the owner $ 10,000.

 Want to buy a record contract worth ($ 100,000), while do not have this amount.

your leverage Finance (1:100), which all gives you the possibility of buying $ 100 dollars.

The book is part of the mediator balance (for example, $ 1000) to buy you the standard contract (this is called the margin reserved).

 Remaining in your account ($ 9,000) is called the margin available.

If you close the deal, for example, net profit ($ 2000) you will be able to get this fully profit in addition to the value of margin ($ 1,000).

The result: more than your account becomes $ 12,000

If the transaction is closed, for example, a net loss (2000 - $) Vsicom median book value of the losses from the margin, and the margin is reserved.

Result: least Hspak and becomes $ 8,000

This is the idea of ​​leverage and the system of margin, you are required to enforce a contract, who shall mediator book portion of your account and buy you the contract, if you win take the value of the profit in addition to the margin reserved area, and if you lose takes mediator of the account covers the value of your losses, and relive the margin reserved again.

Important terms:

Margin reserved (Used Margin): is amount that is Bhdzh the mediator for the implementation of the deal.

Margin (Usable Margin): is the amount remaining in the account after taking the margin, through which you can open new positions, and in the case of bris takes him mediator covers the value of your losses.

You can increase your loss on margin?

Mediator does not increase your loss on margin, if you enter the deal and took losses to increase the broker will be deducted from the available margin to be equal to its value with the value of the loss, then the mediator to close deals and bring you the margin reserved only, and that the so-called entitlement margin (Margin Call).

Margin Call (Margin Call): is the process carried out by the mediator, while equal to the losses with available margin, where the median close all trades and all that is left in the account is margin.

Note: The trading programs offered by brokerage firms margin calculations automatically based on leverage.