Margin and Leverage
Ma bestforexrebategin What is forex rebate the money you must pay to your broker to start trading Technically, there are two forms of Whatisforexrebate - Initial Margin (the initial amount you deposit into your account to start trading), cashback forex Maintenance Margin (the additional money your broker requires you to deposit to ensure forexrebatenetwork your principal is in the correct proportion to your borrowed funds). If your trade size is small, you will hardly be able to afford the full cost of a forex contract (e.g. $10,000) For example, if your position enters a bearish market but has not yet hit your stop loss level, a good broker will inform you how much time you have left to fund your account, usually until the end of the next business day, sometimes before noon when the broker calls you This is called a "margin call" and it always means that you have misjudged some situation, of which the latter is the majority in the Forex market where almost everyone trades on margin, and margin trading means borrowing money to trade. To buy an underlying of $1,000, you need to take half the amount of "initial margin", i.e. $500 but in Forex, you can get 50 times leverage (1:50) which means that if you start with a principal of $500, you can trade a security with a current market price of This means that if you have a starting principal of $500, you can trade 50 times the current market price of a security, i.e. $25,000. The United States enacted regulations in 2010 that require a maximum leverage of 10 times (1:10) for currencies with low trading volumes, such as USD/MXN (U.S. dollar to Mexican peso). For a starting principal of $500, you can buy up to $250,000 worth of currency $500 is your starting principal and the remaining $24,500 is your borrowed funds at 50x leverage The initial margin is a collateral that you provide to the lender (broker) as a "good faith" gesture CME uses the old-fashioned term "Performance Margin" to describe Initial Margin Maintenance Margin is the additional funds you must provide to ensure that your own funds remain in the correct proportion to the borrowed funds For example, you buy the GBP/USD Mini contract at 1.6000, then it drops 40 pips and closes at 1.5960 worth $10 per pip, so you lose $400 Your broker calls you and says that if you dont fund your account to maintain the minimum margin, he will charge you for the loss. Apparently, you failed to set the correct stop-loss level to avoid this margin call and the Chicago Mercantile Exchange published its algorithm for initial guarantee and maintenance margin on its official website. The algorithm is available to analysts for $10 (since 1999), but it is best to familiarize yourself with the spreadsheet before using it. The underlying principle is that the exchange applies volatility factors to each currency to determine the likelihood that margin calls will be required. There is no difference in the initial margin charged for different currencies, but for maintenance margin, they take a page from the Chicago Mercantile Exchange. Usually, they require a minimum margin and a "cushion" because margin calls are a lot of work to manage For example, if a lot is $1,000 and the leverage is 1:50, the initial margin is usually 2% or $20, but the cushion that needs to be added varies: $20 for less volatile currencies (Canadian dollar), $20 for less volatile currencies (Canadian dollar), and $20 for less volatile currencies (Canadian dollar). （Many brokers platforms also offer margin trackers so that you can be alerted when you are at risk of a margin call. Obviously, if your position is only a small loss it is easy for the broker to cut it off, so maximizing leverage is a sure way to put you on the road to bankruptcy! Therefore, most brokers do not recommend that traders use maximum leverage because one random price inflection can leave you with nothing Leverage can magnify profits and losses exponentially It is important to understand the severity of losses Lets say you start trading with $10,000 and your first trade results in a 20% or $2,000 loss of principal Now, you must take a 25% profit to get back to the beginning And you can only use less capital to make that 25% profit, i.e. $8,000 With 1:50 leverage, you can control a face value of $400,000 instead of the previous $500,000 Suppose you lose 20% or $1,600 again At this point, you need to make a 67% profit to get back to the starting point It is easy to see that if you start with a The table below shows the amount of profit needed to recover the loss to recover the loss to recover the profit needed to recover the loss 10%11.1%20%25.0%30%42.9%40%66.7%50%100.0%60%150.0%75%300.0%If you want to calculate the amount needed to recover based on your own data, you can use our Profit/Loss Ratio Calculator You need to ask yourself what are the chances of a 50% loss followed by a 100% profit Even if you happen to catch that unlikely chance, you must admit that the likelihood of a one-time 100% profit is extremely low In fact, the likelihood is almost zero As a result, novice traders almost always lose money, and the market perception is such that novice traders tend to lose more than The margin of profitability is ultimately too high and largely unattainable to recover losses. One important lesson is that high leverage in the Forex market is particularly dangerous.