Margin Trading is the most important aspect of Forex trading, because it is one of the most popular methods of trading with foreign exchange currencies through the medium of a broker.
In this kind of trading, a minimum amount has to be deposited and maintained in ones account with the Broker of ones choice. This amount in turn is used as leverage money by the broker on behalf of the trader to open positions with higher value, which could be as high as 200 times the amount deposited and thats traded in the market.
This is how Forex traders take control of large amount of currency and trade them in the market by making a marginally small deposit in comparison to the trading amount with which traders play in the market.
It is also one way to ensure the broker from losses if any. This margin money to be deposited with the broker for safe keeping acts as a collateral. Its from this money any loss incurred by the broker is to be compensated by the trader as part of a contingency plan. It sort of acts some kind of a safety net for the broker to offset any loss.
Hence this margin money thats to be maintained in ones account is decided by the broker and which differs from one broker to the other.
However one must exercise caution when trading using margin money to leverage your trading power. One false move can doom your fortune to doldrums, otherwise the prospects are very high if you learn to trade carefully.
The prospects of rise and fall are indeed great in Forex Margin trading. Say for a 1% margin you have to deposit 10,000 USD to trade one million dollars. No wonder a swing of 2% either way can cause a 200% loss or profit.
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