Sunday, July 5, 2009

Forex Margin / Leverage

FX accounts are margined: a trader can hold a market position much larger than the value of the trader's account value. The online trading platform which FOREXYARD offers has margin management capabilities, which allow lenient margin requirement of up to 1/2%. However, we do not recommend using leverage of more than 10 times your account value. Using leverage exaggerates both gains and losses. Even when market conditions are relatively calm, using leverage can generate large gains or losses. In the case where a trader surpasses the maximum leverage allowed (which can happen when account equity shrinks as a result of trading losses), the trading system will close all open positions in the account. This prevents client's accounts from falling into a negative balance, even in a highly volatile, fast moving market.

Example of How Margin Works

Since the trader opened 1 lot of 10k EUR/USD, his margin requirement or Used Margin is $50. Usable Margin is the funds available to open new positions or sustain trading losses. If the equity (the value of his account) falls below 20% of his Used Margin due to trading losses, his position will automatically be closed. As a result, the trader can never lose more than he/she deposits.

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