July 25, 2011

Margin Trading

Margin Trading
Trading on margin is a facility provided to investors to make trades exceeds the capital owned. This can happen because investors got a loan from a bank or broker, where the investor can simply provide a bit of money as security (collateral).

For investors, the use tyrading margin will increase purchasing power because the funds in the transaction exceeds the amount of capital owned. For brokers or lenders, the use of margin trading can increase competeitive advantage.

Type of margin provided to investors is the margin by a percentage (Percentage Based Margin) and the margin with a certain amount of money (Fixed Amount Margin).

Based Margin Percentage

Percentage based margin lending to invertor certain percentage of transaction value. Margins are given in currency into the base currency in the quotation.

Example kalu by guarantee (collateral) of 1%, then to the transaction in USD? USD $ 100,000 (1 lot) enough investors to provide funds of $ 1,000 (1% x $ 100,000).

Fixed Margin Amount

In trading on margin, there is a term called leverage. Leverage is the ratio or the ratio of the amount of funds that can be transacted with its own capital (as collateral or guarantee) owned.

Leverage ratios for each broker or a bank different from one another, eg 1:50, 1:100, 1:200 or 1:400. With a leverage of 1:100, then the investor can simply provide a fund of $ 1 for purchases of $ 100. For example, if a fund of $ 2,000 then with 1:100 leverage we can buy up to $ 200,000 (200,000 units).