What is the Margin?

22 Jan 2010

If you supply a default cash account, you know that money must be deposited for the full amount of the position you are trading, or if you have a margin account for at least half of the position. This was in contrast to the FX market, where only a small percentage of the actual position value must be paid prior to entering the trade.
If you supply a default cash account, you know that money must be deposited for the full amount of the position you are trading, or if you have a margin account for at least half of the position. This was in contrast to the FX market, where only a small percentage of the actual position value must be paid prior to entering the trade.
This small deposit, known as the margin is not a deposit, but rather a performance bond or good faith deposit guarantee scheme to ensure against trading losses. The margin requirement allows traders to hold positions much larger than their account value. Margin requirements are as low as 1% (and as low as 0.5% on the mini-account), which means that for every standard lot size of 100,000 units, you must commit $ 1000. But, if you wanted a $ 100,000 check in the stock market, you would pay at least $ 50,000.
Even in the futures market, you should deposit at least $ 5000 for a $ 100,000 position control. On your trading station you can see that there are two types of margins: useful and used. You use margin is the amount of funds you have committed to existing positions, and your usable margin is the amount of money you have available to commit to new positions. Equity is your account balance plus or minus a floating profit or loss.
Suppose you open an account with $ 10,000. At the moment your balance and equity are both $ 10,000, your usable margin is $ 10,000 and you use margin is $ 0, as you have a box to place. Then buy 7 lots of USD / JPY, which you $ 7000 in equity to maintain. Buy your used margin is $ 7000 and your usable margin is $ 3000. This essentially means that the market losses of $ 3000 for your account falls below the required minimum margin of $ 7000, then the dealing desk closes all open positions can support. This automatic margin call feature prevents your account ever reach a negative balance.


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