What is margin trading?

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What is margin trading?

Content:

  1. Used margin and usable(available) margin
  2. How to calculate the user's Used margin and usable margin
  3. What is Margin call?
  4. Margin trading in forex
  5. How to open forex account?
  6. What is Forex cashback?
  7. Conclusion.

 

Used margin and usable margin

Lets say you are a small trader and you don’t have enough money to buy a car, but you have a good experience in term of car trading to your clients, so When you open an account with an auto-dealership, for example, that allows margin trading, you will lodge in advance a small fixed amount of money that will stay intact until you settle to purchase a car, then your credit will be split up into two sections:

The margin used is the margin that will be deducted in advance. It is a refundable deposit that will be returned to your account after selling the car, whether it is traded at a gain or loss.

Available margin (usable margin): the amount remaining in your account after deducting the used margin, and this amount are the maximum loss  you can have after selling the car to your client.

 

 

How to calculate the user's Used margin and usable margin?

We do not want to yield too much attention to how to calculate margin used by yourself. Often you do not need to, since the forex broker will adjust automatically.

In the previous example, let’s say that the value of the whole car = 10.000$ and you have deposited 3000 $, the auto dealership will tell you that it will deduct $ 1000 from your account as a user margin for each automobile you buy. If you purchase two cars you will deduct 2000 $ from your account as a used margin and your credit will remain 1000 $ as margin available.

Although the company you deal with will eliminate the need to calculate margin used by yourself, but it would be very useful to learn how managing it yourself.

The used margin can be computed utilizing the following recipe:

Margin used = total value of purchase items / multiplication ratio

In the previous example since the value of the whole car = $ 10.000 and the multiplication  rate allowed by the company is 10 times, that is, the company doubled the capital to you 10 times, the margin will be derived by the authority:

Margin Used = Full Item Value / Multiply Ratio

= 10.000 / 10 = $ 1000

If you think of buying two cars instead of a car, the margin used will be deducted from your account:

Used margin = 20,000 / 10 = $ 2000

In the international markets, brokerage companies that trade marginally in different types of commodities, for each specific commodity has its own  deal. Each type is sold on a fixed unit basis called contract size, which is the lowest unit traded from the commodity.

In the previous example of cars, the size of the contract = one car worth $ 10.000, that you cannot trade less than a car worth $ 10.000 and you can trade multiples of this act, such as trading two cars or three and so on.

Of course you are not allowed to trade a car and a half!!

The margin calculation method used is:

Margin Used = Number of Contracts * Contract Size / Multiplication Ratio

You will know the size of the contract you are dealing with and the proportion of the multiplication in advance before dealing with, which may vary from company to company.

Let's look at our previous example:

We know that the size of the contract = one car worth $ 10.000 and the multiplier ratio = 10

And then we recognize that if we want to sell a car, the amount deducted by the car franchise from our account is:

Margin Used = Number of Contracts * Contract Size / Multiplication Ratio

= 1 * 10.000 / 10 = $ 1000

If we want to buy two cars will be:

Margin Used = Number of Contracts * Contract Size / Multiplication Ratio

 

= 2 * 10.000 / 10 = $ 2000

Therefore, you can work out the margin used for any number of cars. If we simulate that you wanted to purchase 3 cars at once, $ 3000 will be deduced as a security deposit.

If you are dealing with auto dealership makes you a double ratio of 20 times, that this dealership will let you to trade cars worth 20 times the total money you  deposit  you can estimate how much used margin will be deducted if you want to swap in one automobile:

Margin Used = Number of Contracts * Contract Size / Multiplication Ratio

= 1 * 10.000 / 20 = $ 500

 

That  means that this dealership will deduct from your account $ 500 for each car you trade.

How to compute the margin available?

Computed by the following simple equation:

The margin available = Balance - Margin used

Agreeing to the previous model:

You have already deposited $ 3,000 in your account with the auto dealership you have = $ 3000

When you settle to purchase an automobile that has deducted $ 1,000 as a user margin, the margin available  you have now is:

The margin available = Balance - Margin used

= 3000 - 1000 = 2000 $

 

It is the maximum amount you can lose on a deal.

 

If you take for granted that you have resolved to buy two cars, $ 2000 will be taken off as a user margin and your margin will now be:

The margin available = Balance - Margin used

= 3000 - 2000 = $ 1000

.

It is the maximum amount you can lose on a trade.

 

Thus,

The Margin Trading System is a scheme that grants you to trade goods worth more than your capital.

This case of trading deals with private companies that multiply your capital multiple times, permitting you to trade a commodity against a minor part of its value as a user's deposit.

These societies do not share the profit or loss. They simply require you to compensate the total value of the item after selling it. Its charge is to execute the sale and purchase orders that you designate at the monetary value you choose.

 

If you ordered the sale of the commodity at a toll higher than the purchase price will be gone through and will derive the value of the commodity in full and will return you a deposit plus the entire profit as if you already possess the commodity.

 

 If placed to sell the commodity at a price below the purchase price will be implemented and will be deducted from your account to complete the value of the whole commodity.

 

What is Margin call?

 

In the case of previous cars and in case of selling the car at a personnel casualty.

And so when the price down to $ 8000  a warning will come to you from the so-called Margin Call.

It is a warning that the company will either trade the car straight off or add more money to your account.

What is this about?

We intend that the dealership monitors the price of cars all the time and with any change in the price of autos in the market assume that you will arrange them to sell the car.

Always be careful that you carry the whole loss and not him.

But as they do not share your profit does not share your loss also.

Then when it becomes: the current market price - the purchase price = the margin available.. Will play along the margin call

 

So what do you need to do first?

You have a choice of two:

Either tell the dealership to sell the car at this price, which trades at a price of $ 8000 so the dealership will put through the order and deduct the remaining  from the margin available to you and thus will deduct $ 2000 and thus have completed full value of the car ($ 8000 current market price + $ 2000 the amount deducted from your account)

 

 The paid deposit refunds you as a user and becomes $ 1000 in your account

($ 3000 original account - $ 2,000 deducted)

 

Your loss in the transaction is $ 2000 you fully incurred.

 

If you do not desire to sell at this price and desire to wait longer, the cost may go up again, adding more money to your account.

 

If you have added $ 1000 to the available margin, the available margin will be $ 3,000

Even if the car price drops to $ 7,000, the dealership will be able to fill out the full value of the car in case of selling at the current cost.

 

Merely what if the cost of the motorcar in the market reached $ 8000 and came to you the margin call did not sell the car and did not add more money to my chronicle? What will happen now?

 

The auto dealership will sell the car on your behalf at $ 8000 and no one will wait for you.

As we articulated, it will not permit you to lose more than the amount in your account.

This is fair and no doubt.

When car prices are elevated, you will obtain a total profit for yourself and you will be asked only to pay off the total value of the car.. It is reasonable if the franchise does not suffer the loss of falling costs.. Neither share the profit or loss.

If you interpret the above example, then you realize the principle of trading using margin.

Margin trading system is an opportunity for many people to enable them to trade in a size of more than several times their capital, while retaining the profit as if they really possess the commodity and hence enables the merchants to have huge profits and a lot that cannot be controlled by any other type of investment.

 

Many people who have the desire  to get into the market, but their greatest problem is that they do not engage in enough capital to establish.

Trading the marginal system, the final thing you care  about is the capital!!

You can understand trading the marginal system as a temporary loan from the institution you deal with.. Where the institution lending you the commodity you want to trade for payment of a fraction of its value as a refundable, but to interpret the value of this commodity after you sell without the participation of anyone profit or loss.

 

In parliamentary law to insure that you do not select this item and run away without a reappearance, this item is kept in the public figure of the company. You can betray it by setting up the organization to sell it at the price you deem appropriate, either at a gain or loss, provided that the loss does not exceed the amount in your account.

You will be able to swap in different cases of goods and sizes may exceed your capital up to 2000 times!

 

Margin trading in forex

 

This typically what happens in forex trading carried out by forex brokers in the world.

Click in here to watch video smiley

 

How to open forex account?

If you desire to open a forex account I recommend looking for a reputable broker. There are plenty out there from www.invstoc.com.

Simply go to their website and sign up. They would usually give you a call after registering to confirm details and after you set your details you are set to trade forex! A point would be if you want to sign up to a broker look for a forex cashback scheme which will rebate you some or your trading commissions.

 

What is Forex cashback?

It’s a great question, because sadly, a very small group of traders know about Forex cashback.

 

Forex cashback is all about the trader. It’s like you are bringing back a nice part of your money for free (from commissions and spreads). Normally, these sites have deals with plenty of brokers, and if at that point are a lot of agents to choose from, you know you’ve found a safe home. Also, it’s completely risk-free, and safe, because well-known and big-time brokers wouldn’t make a deal with a shady site. And you can only get money, you can never lose money.

 

So, it all starts with making an account at the cashback site, or adding an existing one, it varies from brokers to brokers. There are a lot of promotions if you register via these sites, because usually those cashback-broker deals are quite promising for the traders - like you.

Then it’s all about trading - really, these sites don’t require you to do anything special other than trading - they just handle your cash back money. Of course, they get their fair share of the deal, but who cares until you’re getting free money. Whether you win or lose, you get money, and the amount depends on the volume and quantity of your trades.

 

I’m pretty sure you’re interested in examples as well - my number one choice would be invstoc.com. Invstoc.com  is a rapidly growing business you can choose from around 100 brokers, with the best deals on the market. (Highest cash back in the world)

I’ve never met a person who’d have negative experiences about invstoc.com. It’s completely safe, withdrawals are never late and on a weekly basis, which is not provided by any website in the market, and you can even reach a promising 80% cashback rate. Try it out, you can only gain by it.

 

If you still have any questions regarding how Forex cashback works, kindly read this article

What is a Forex Cashback Rebate?

 

Conclusion:

  1. Forex trading is based on margin trading and some forex brokers vary the leverage they are offering up to 2000 times
  2. Using forex cashback scheme they're offering, you will earn extra money on every trade you make whatever you win or loss.
  3. Invstoc provides a wide range of  trusted forex brokers with highest cashback rebate programs in the word 

 

www.invstoc.com  is one of the most comprehensive providers and pays its clients access to only certified and trusted  forex brokers globally with highest cashback in the world exceed 80% from given high baseline in comparison to all competing cashback providers.

You will first need to register with the cashback brokers. This is free, and no credit card or other financial information needs to be supplied. Once you have registered with INVSTOC  you will be able to pick out and connect with forex brokers.

View this video to join the cashback program

Click in here

Why should forex trader join invstoc cash back program?

  1. Invstoc provides over than 100 of only certified and trusted forex brokers globally, with the highest cash back rebate in the cosmos, far away from any manipulation or sarcasm which have been shown with unknown week forex cashback providers 
  2. Invstoc is the only economic networking website that allows cashback instant  withdrawal on a weekly basis .
  3. Invstoc provide forex traders with a completely  free package of instruments and services  which are necessary for any forex traders like
  • Forex currency calendar to alert all over the day
  • Economic news
  • Live trading signals by professional dealers
  • 24/7 technical support and live chat.

 

 

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