What Are Margin And Leverage?

Margin trading

Foreign exchange pactions used to be only trading products with huge capital customers. General investors can only admire the huge profits that hedge funds get in foreign exchange pactions. However, the development of Internet and the prevalence of online pactions make foreign exchange pactions more and more popular. Today, foreign exchange pactions are not only products of rich customers. Futures dealers allow all foreign customers to provide foreign exchange trading services. Thanks to margin trading and leveraged pactions, customers only need a small amount of capital to trade considerable volume of pactions.

Increase purchasing power

Leverage refers to increasing purchasing power with financial products or borrowed funds, such as margin. Many customers feel that leveraged pactions are dangerous because the amount of purchases is far greater than their firm trading volume. In fact, leveraged pactions are strong for traders if they are flexible in applying leverage pactions. Some customers initially use the smallest leverage coefficient to detect the market. Once the trend is clear, the leverage coefficient should be increased immediately to ensure maximum profit.

Look at the example.

For example, to trade 100000 units of US dollar / yen USD/JPY., traditionally, traders need us $100000 or 1:1 leverage. But if leverage of 100:1 is used, traders only need one percent of the margin, that is 1000 dollars.