WHY DO WE NEED TO UNDERSTAND MARGIN IN FOREX TRADING MARKET?
8 April, 2020
Even though many forex traders are making money in forex market, they show a shallow understanding of Margin in forex trading. In fact, traders will be offered different margin requirement by brokers. The need to understanding how the margin works is crucially vital if you want to trade with a margin in forex market. After understanding how it works, the next step would be the decision on which broker you want to trade. In this article, I will show you some fundamental features of margin, as well as advice when trading with margin.
How do you define margin?
Normally, many forex traders fail to comprehend how margin works in forex market, as they think that it is not neccessay to understand it. However, it is one of the most significant aspects when trading in forex market because it helps you to retain your open positions. It should be understood that margin is not considered a transaction fee.
In addition, margin will be measured in percent. It can be well exemplified by the percent of 0.25%, 0.5%, 1% as margin requirements when you want to trade with margin in forex market. You can easily calculate the leverage that you can hold in your account depending on the margin offered by your forex brokers.
It would be essential to know that free margin is not connected to any transaction in forex trading. The only purpose of a free margin is to help you expand your positions. Additionally, you will gain big equity if you gain profits by opening more positions. As a result of this, more free margin will be offered to your account.
In another case, you can have both more positions and pending orders at the same time. You might not have sufficient free margin in your account since the forex market causes your pending orders. When the market generate a pending order, the order might be called off, leading to a scenario that traders think their brokers had failure in implementing their orders. However, it is not correct. The only reason for this is that free margin of traders does not suffice.
How do we know about a Margin Call in forex?
Speaking of a margin call, it can be an unwanted situation that no forex traders want this to happen. It is simply because open positions of forex traders move against, causing a fall of margin deposits.
Understandable, you will be able to make huge profits when trading with a margin in forex market, but you should have a better insight into its features. It is highly suggested that you should carefully look at the margin agreement when you trade with a forex broker. Apart from this, you should not trade with a margin when you feel ambivalent about the agreement between your broker and you. If you experience this case, you should ask them to elucidate everything before making your final decision.
More importantly, the broker will close several or all positions when the amount of money in your account drops under the requirement. In conclusion, trading with a margin in forex market might bring about great benefits. In order to trade with margin effectively, it requires every traders to understand how it works. As aforementioned information, I hope you can succeed in trading with margin in forex market in the future. Next, learn about pips trading.