About Margin and Leverage in Forex
What is Margin
Margin is considered as a deposit required when a trader enters the market in order to keep positions open. Margin is not a transaction fee but a small portion taken from trading accounts equity. Margin requirements are set by AlmondFX by taking a percentage of the estimated trade size along with a slight safeguard.
What is Leverage?
Leverage is an important financial tool that allows an investor to grow his market exposure to a level that exceeds the initial investment. Since the investor opens a trading account with margin requirements, he needs to trade on margin (trade on leverage), allowing him to open trades that are higher than the initial capital.
Margin Call & Stop Outs
When trading on leverage, a trader borrows funds from the broker to be able to trade at higher points. Since the capital deposited to the account is used as collateral on which the loan is based, margin calls and stop outs are employed for better risk management strategies that limit the risk of receiving a negative account balance.
Margin call is the first indicator that informs the trader that the account margin level is reaching the minimum point. A stop out arises when the account balance reaches below the margin call, forcing the trading platform to automatically close down opened positions.
AlmondFX provides a flexible range of leverage ratios where investors can select to trade using 1:100 up to 1:500 leverage.
Traders who trade with a high leverage ratio can either benefit with high profits or either end up with a negative balance. Therefore, it is important that a trader fully understands the correct use of leverage and the risks involved when trading on margin.