![\"Forex](\"https:\/\/bpcdn.co\/images\/2016\/05\/senior-toxic-leverage.png\" "\\"Forex")
<\/figure>\n\n\n\nFor example, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1.<\/p>\n\n\n\n
You\u2019re now controlling $100,000 with $1,000<\/strong>.<\/p>\n\n\n\n Let\u2019s say the $100,000 investment rises in value to $101,000 or $1,000.<\/p>\n\n\n\n If you had to come up with the entire $100,000 capital yourself, your return would be a puny 1% ($1,000 gain \/ $100,000 initial investment).<\/p>\n\n\n\n This is also called 1:1 leverage.<\/strong><\/p>\n\n\n\n Of course, I think 1:1 leverage is a misnomer because if you have to come up with the entire amount you\u2019re trying to control, where is the leverage in that?<\/p>\n\n\n\n Fortunately, you\u2019re not leveraged 1:1, you\u2019re leveraged 100:1<\/strong>.<\/p>\n\n\n\n The broker only had to put aside $1,000 of your money, so your return is a groovy 100% ($1,000 gain \/ $1,000 initial investment).<\/p>\n\n\n\n Now we want you to do a quick exercise. Calculate what your return would be if you lost $1,000.<\/p>\n\n\n\n If you calculated it the same way we did, which is also called the correct way, you would have ended up with a -1% return using 1:1 leverage and a WTF! -100% return using 100:1 leverage.<\/p>\n\n\n\n You\u2019ve probably heard the good ol\u2019 clich\u00e9s like \u201cLeverage is a double-edged sword.\u201d or \u201cLeverage is a two-way street.\u201d<\/p>\n\n\n\n As you can see, these clich\u00e9s weren\u2019t lying.<\/p>\n\n\n\n So what about the term \u201cmargin\u201d? Excellent question.<\/p>\n\n\n\n Let\u2019s go back to the earlier example:<\/p>\n\n\n\n In forex, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios<\/strong>, is now 100:1<\/strong>. You\u2019re now controlling<\/em> $100,000 with $1,000.<\/p>\n\n\n\n The $1,000 deposit is \u201cmargin\u201d you had to give in order to use leverage.<\/p>\n\n\n\n Margin is the amount of money needed as a \u201cgood faith deposit\u201d to open a position with your broker.<\/strong><\/p>\n\n\n\n Margin is usually expressed as a percentage of the full amount of the position<\/strong>. For example, most forex brokers say they require 2%, 1%, .5% or .25% margin.<\/p>\n\n\n\n Based on the margin required by your broker, you can calculate the maximum leverage you can wield with your trading account.<\/p>\n\n\n\n If your broker requires a 2% margin, you have a leverage of 50:1.<\/p>\n\n\n\n Here are the other popular leverage \u201cflavors\u201d most brokers offer:<\/p>\n\n\n\n Aside from \u201cmargin requirement<\/strong>\u201c, you will probably see other \u201cmargin\u201d terms in your trading platform.<\/p>\n\n\n\n There is much confusion about what these different \u201cmargins\u201d mean so we will try our best to define each term:<\/p>\n\n\n\n Margin requirement: <\/strong>This is an easy one because we just talked about it. It is the amount of money your broker requires you to open a position. It is expressed in percentages.<\/p>\n\n\n\n Account balance: <\/strong>This is just another phrase for your trading bankroll. It\u2019s the total amount of money you have in your trading account.<\/p>\n\n\n\n <\/strong>Used margin: <\/strong>The amount of money that your broker has \u201clocked up\u201d to keep your current positions open.<\/p>\n\n\n\n While this money is still yours, you can\u2019t touch it until your broker gives it back to you either when you manually close your current positions or when a position is automatically closed by your broker.<\/p>\n\n\n\n Usable margin: <\/strong>This is the money in your account that is available to open new positions.<\/p>\n\n\n\n Margin call:\u00a0<\/strong>You get this when the amount of money in your account cannot cover your possible loss.\u00a0It happens when your\u00a0equity\u00a0falls below your used margin.<\/p>\n\n\n\n If a margin call occurs, your broker will ask you to deposit more money in your account. If you don\u2019t, some or all open positions will be closed by the broker at the market price.<\/p>\n\n\n\n <\/p>\n\n\n\n Let\u2019s discuss leverage and\u00a0margin\u00a0and the difference between the two. What is leverage? We know we\u2019ve tackled this before, but this topic is so important, we felt the need to discuss it again. The textbook definition of \u201cleverage\u201d is having the ability to control a large amount of money using none or very little of your […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[814],"tags":[],"_links":{"self":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9997"}],"collection":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/comments?post=9997"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9997\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=9997"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=9997"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=9997"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}What is margin?<\/h2>\n\n\n\n
![\"Forex](\"https:\/\/bpcdn.co\/images\/2016\/05\/senior-crunk.png\" "\\"Forex")
<\/figure>\n\n\n\nMARGIN REQUIREMENT<\/th> MAXIMUM LEVERAGE<\/th><\/tr> 5.00%<\/td> 20:1<\/td><\/tr> 3.00%<\/td> 33:1<\/td><\/tr> 2.00%<\/td> 50:1<\/td><\/tr> 1.00%<\/td> 100:1<\/td><\/tr> 0.50%<\/td> 200:1<\/td><\/tr> 0.25%<\/td> 400:1<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n Do you feel overwhelmed by all this margin jargon? \nCheck out our\u00a0 lessons on\u00a0margin\u00a0in our\u00a0\nMargin 101 course\u00a0that breaks it all done nice and \ngently for you.<\/code><\/pre>\n","protected":false},"excerpt":{"rendered":"