Some important terms
Margin:
Banks and /or online trading providers need collateral to ensure that the investor can pay in the event of loss. The collateral is called the 'margin' and is also known as minimum security in Forex markets. In practice, it is a deposit to the trader's account that is intended to cover any currency trading losses in the future. Margin enables private investors to trade in market that have high minimum units of trading, by allowing traders to hold a much larger position than their account value. Margin trading also enhances the rate of profit, but similarly enhances the rate of loss, beyond that taken without leveraging.
Maintenance Margin:
Most trading platforms required a "maintenance margin" be deposited by the trader parallel to the markgins deposited for actual trades. The main reason for this is to ensure the necessary amount is available in the event of a 'gap' or 'slippage' in rates. Maintenance margins are also used to cover administrative costs.
Leverage:
Leveraged financing is a common practice in Forex trading, and allows traders to use credit, such as a trade purchased on margin, to maximize returns. Collateral for the loan/leverage in the margined account is provided by the initial deposit. This can create to opportunity to control USD 100,000 for as little as USD 1,000.
There are five ways private investors can trade in Forex, directly or indirectly:
Banks and /or online trading providers need collateral to ensure that the investor can pay in the event of loss. The collateral is called the 'margin' and is also known as minimum security in Forex markets. In practice, it is a deposit to the trader's account that is intended to cover any currency trading losses in the future. Margin enables private investors to trade in market that have high minimum units of trading, by allowing traders to hold a much larger position than their account value. Margin trading also enhances the rate of profit, but similarly enhances the rate of loss, beyond that taken without leveraging.
Maintenance Margin:
Most trading platforms required a "maintenance margin" be deposited by the trader parallel to the markgins deposited for actual trades. The main reason for this is to ensure the necessary amount is available in the event of a 'gap' or 'slippage' in rates. Maintenance margins are also used to cover administrative costs.
Leverage:
Leveraged financing is a common practice in Forex trading, and allows traders to use credit, such as a trade purchased on margin, to maximize returns. Collateral for the loan/leverage in the margined account is provided by the initial deposit. This can create to opportunity to control USD 100,000 for as little as USD 1,000.
There are five ways private investors can trade in Forex, directly or indirectly:
- The spot market
- forwards and futures
- options
- contracts for difference
- Spread betting
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