Chart Pro online
User name (email):
Forgot password?  

Recently used




Margin trading is trading with the loan. The advantage of this type of trading is that a trader with small funds can make larger profits. The margin is the minimum amount of money that must be on account. It is a cover for trading. The minimum value depends on the amount of money needed for opening position and leverage.

The advantage of margins is that a small amount of money controls a significantly higher amount. For example, you want to buy a 100.000$ when the exchange rate of EUR/USD is 1.4700. Assuming that the leverage is 100:1, you must have a minimum of 680,27€ on account. That amount of money is margin. After a certain time exchange rate changes, EUR/USD = 1.4600. You sell dollars and buy euros. With new exchange rate you get 68.493€. You have invested 68.027€ with a loan, so gain is 466€. Since you only gave money for the margin, your effective profit is 466€ on 680€ invested, or 68.5%. If you were trading without a loan the profit will be 466€ on 68.027€ invested or 0.68%.

As you can see margin trading allows trader to make large profits. But it carries great risk. Let's assume that in this example exchange rate changed for the same amount, but in different direction. Situation would be very bad. The loss would be 460 euros, or about 68%. Some traders look at losses on a different way: no matter whether you are trading with or without a loan, the loss is 460€. Just in case of trading with margin lost is 460€ on 680€ investment, but in the case of trading without a loan lost is 460€ on 68.027€ investment. In both cases you have lost 460 euros. It really is true, however, gains and losses should be seen by a percentage. In case you've made such a loss on 680€ investment, another such disaster trade and you're out of the game. While in the case of investment without loan you can continue trading with large amount of money for investments. Also when you trade without a loan, you can "survive" price corrections. If you invested money with a loan, corrections may be so great so you can lose whole margin (lose of 100%).

Margin trading is common for trading with currencies (forex or simply FX) and financial derivatives. Currency trading practically has no sense without the margin, because daily changes are very small. So you would need a lot of money to invest to in order to make a good profit.

Today, most of professional traders are trading with a loan. Beginners should not trade on margins at least until they gain the necessary trading experience.

< Tips for successfull trading
Hedging >