Margin and Leverage. In the world of online forex trading, we will see the term the margin. This is because the margin is important in the world of forex trading online. So, what is the margin?
Easy it, the Margin we can equate with the down payment/security deposit. Suppose we want to buy a car worth 100 million, but we don’t have the money 100 million who are physically in our hands. But, the car dealer let us have the letter of the contract as the owner of the car by providing a guarantee of 30 million. Well, 30 million is called as money advance. For instance, we want to sell a car we pay the down payment was $ 120 million, not a problem, because we have papers as the owner of the car isn’t it? When we’ve found a buyer willing to buy our car for $ 120 million cash, we could pay the money to the car dealer. So, because the price of the car 100 million, and we have already paid a down payment of 30 million, the drawbacks amounted to 70 million. From the results of car sales, we have 120 million, 70 million we will pay to the dealer to cover the shortage of the purchase of the car. Well, in our hands now no money of 50 million, consisting of: 30 million capital purchase papers of the car, and 20 million from the sale of the car.
In principle, such as that of forex trading. Where in forex trading, which is traded is his contract. If we want to buy USD/GBP of $10,000, but we don’t have real money as much as it is. Then the system margin allows us to be able to have the contract with just $100 dollars for example. The value of a much smaller isn’t it? So we can still be trading only with a capital of $100 dollars.
Then how to determine the magnitude of the margin?
In determining the margin, the known term leverage. Leverage varies in amount depending on the forex broker. If we suppose that the value of the leverage is 1:100, and we want to buy USD/GBP for $10,000 then the margin is: 1/100 x 10.000: 100. So, to buy EUR/GBP with the real value of the $10,000, we can hand over our funds of $100.
Well, it’s pretty obvious it’s not about margin and leverage? In general, that’s the role of margin and leverage. Margin and leverage can not be separated from each other.