Two of the most important concepts that traders need to know are leverage and margin. If you want to become a profitable trader in the market, you need to know about these terms. A margin is the loan given by your broker that allows you to put up your funds and the securities in your account and use them as leverage in order to engage in larger trades.
However, in order to get approval for using margin, you will need to open a margin account. The collateral for the loan is the securities and cash that you deposit in your margin account but the money you borrow to use as margin doesn’t come for free. You will have to pay an interest on the amount that you borrow. In general, you can expect to pay interest rates of anywhere between 5-10% on the margin.
Just like margin, you should know about leverage as well. You can use the margin in order to create more leverage. Simply put, the additional buying power afforded to margin account holders is known as the leverage. In layman’s terms, you will be able to pay less than the full price of any trade, thus making it easy for you to enter much bigger positions, which would not be possible if you were simply using the funds in your account. If you were to talk to a forex broker, they would generally express the leverage in a ratio.
- See more at: https://goo.gl/KNe3QC
No comments:
Post a Comment