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Leverage is the ability to pay only a small amount of the value of the currency as an initial payment to open a trade. It enables you to control larger trade sizes with a smaller initial outlay. While leverage can increase the potential return on investments, it also has the capability to increase potential losses as well, so it’s imperative that you think carefully about the amount of leverage you want on your trading account. If the leverage of your account is 500:1, this means you can trade up to 500 times the equivalent amount of base currency you have in your account. Trader X has a leverage of 50:1 and Trader Y has a leverage of 5:1. Let’s compare the effects on their accounts if they were to both have a 100 pip loss.
With a conservative leverage strategy, you have a greater chance of long-term success. This is not a transaction cost, nor is it charged to your account, but serves to ensure that you have sufficient balance in your account relative to the size of your position. The amount of margin that is required depends on your position size and the instrument that you are trading. If the floating value of your account falls below your margin requirement, we may notify you that we’ll close the position. Risk Warning: Derivative products are leveraged products and can result in losses that exceed initial deposits. Please ensure you fully understand the risks and take care to manage your exposure and seek independent advice if necessary. Tax laws depend on individual circumstances.
Tax law may differ in a jurisdiction other than the UK. Limited is authorised and regulated by the Financial Conduct Authority, FRN 629628. Registered address: 2 Copthall Avenue, London EC2R 7DA. Pty Ltd is the holder of Australian Financial Services Licence number 424700. Registered address: Level 12, 636 St. Kilda Road, Melbourne, VIC, Australia 3004.
Think Capital Limited is registered in Bermuda, Company number: 51879. Registered address: Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. Limited is registered in the United Kingdom, Company number 10537331. Registered address: 2 Copthall Avenue, London, EC2R 7DA. The information on this site is not directed at residents of the United States and Japan and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. These funds are not being used as collateral in trades on the Forex financial market.
Alpari Limited, Cedar Hill Crest, Villa, Kingstown VC0100, Saint Vincent and the Grenadines, West Indies, is incorporated under registered number 20389 IBC 2012 by the Registrar of International Business Companies, registered by the Financial Services Authority of Saint Vincent and the Grenadines. Alpari is a member of The Financial Commission, an international organization engaged in the resolution of disputes within the financial services industry in the Forex market. Risk disclaimer: Before trading, you should ensure that you fully understand the risks involved in leveraged trading and have the required experience. To be redirected to the European Alpari website, operated by Alpari Europe Ltd. Malta and regulated by MFSA, click Continue. To remain on this page, click Cancel. There are some people who are curious about what a margin call is.
Here, definition of what is margin call will be discussed briefly. A margin call occurs when a trading account does not have sufficient amount of money anymore to support the trades that are open. The margin call situation is likely to happen if there are a large number of floating losses. The situation can be illustrated as follows.
Each of the pips will be worth more or less 20 cents. From the above illustration, you can see the working system of a margin call. The definition of what is margin call can also be explained like the following. Now the investors have to either raise the margin that they have posted or close their position.
The investors can close out their position both by selling the securities, futures or options if they are long and by buying them back if they are short. However, if none of these is done, the broker can put their securities on the market to meet the margin call. Hot Retail stock to watch: Lululemon Athletica Inc. Hot Tech stock to watch: Micron Technology, Inc. Risk Warning: Trading CFDs is a high risk activity and you may lose more than your initial deposit. You should never invest money that you cannot afford to lose. Please be fully informed regarding the risks and costs associated with trading the financial markets.