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What is Margin in Forex?
The term margin is quite common in the world of forex. What does it actually mean? Margin is the minimum amount of money which is needed in order to open a new position and maintain it.
This margin will vary from one broker to another. Many consider it as a kind of faith deposit, rather than a cost of trading. In most cases the margin is small.
To clarify this numerically, consider a trader who wants to trade a position that is $10,000, and the margin requirement is of 1%. Hence he would need a $100 deposit on the trading account. The rest is provided by the broker. This is when one trades with leverage.
The margin depends on a number of factors. Primarily, it could be different depending on the policies of the firm and the broker. Some brokers might require a higher margin so as to be willing to hold positions over the weekend as at that time there is an increased risk. So the margin might be 1% throughout the week, but increase to 3% over the weekend.
You should also note that should the balance fall below the broker’s required level, then a margin call occurs. This is basically a demand for the investor to deposit more money in the account. Hence the margin level can be considered as a good indicator of how healthy the trading account is.
While most brokers offer a margin of 1% to 2%, there are others who offer a margin between 5% and 10%. So you may wish to consider this carefully beforehand.
This margin will vary from one broker to another. Many consider it as a kind of faith deposit, rather than a cost of trading. In most cases the margin is small.
To clarify this numerically, consider a trader who wants to trade a position that is $10,000, and the margin requirement is of 1%. Hence he would need a $100 deposit on the trading account. The rest is provided by the broker. This is when one trades with leverage.
The margin depends on a number of factors. Primarily, it could be different depending on the policies of the firm and the broker. Some brokers might require a higher margin so as to be willing to hold positions over the weekend as at that time there is an increased risk. So the margin might be 1% throughout the week, but increase to 3% over the weekend.
You should also note that should the balance fall below the broker’s required level, then a margin call occurs. This is basically a demand for the investor to deposit more money in the account. Hence the margin level can be considered as a good indicator of how healthy the trading account is.
While most brokers offer a margin of 1% to 2%, there are others who offer a margin between 5% and 10%. So you may wish to consider this carefully beforehand.