margin account. Video: What is margin and leverage

All traders speculating in the financial markets use a trading account in their work, on which transactions take place. Under the terms of brokerage companies, they have margin lending. Everybody financial operations, committed by speculators, occur with the use of leverage. What is margin, in simple words - lending for trading? This, as well as its features and rules of use, will be discussed in the article.

The concept of margin

In trading on financial markets, loans with marginal conditions are provided by brokerage companies to all clients without exception. This allows speculators to trade for more favorable conditions. What is margin? In simple words- it special kind credit for trading in financial markets. This type of provision of additional funds allows clients to use trading assets with financial leverage. That is, a trader can make transactions on more favorable terms with an excess of his own deposit money.

With the help of leverage, the speculator has the opportunity to use additional funds in his transactions, which are provided to him by the brokerage company. It has its own parameters and conditions for each trading account, the main of which is the issuance of a loan secured by its own deposit funds trader on his account.

Leverage

When a client registers with a brokerage company and draws up an account for work, he can choose the most suitable option for him (“Standard”, “Vip”, “Micro” and other types). Most often it depends on the free amount of money that the speculator is willing to risk, that is, on his deposit.

Leverage is the ratio of the total amount Money trading account to the volume of the lot. Usually, these conditions are specified in the contract, but there are brokers that allow clients to choose them on their own.

Types of leverage:

• 1:10;
• 1:25;
• 1:50;
• 1:100;
• 1:200;
• 1:500;
• 1:1000 and other options.

The higher this indicator, the more opportunities a trader has in speculative operations. But it must also be noted that financial risks increase. Therefore, when choosing the type of trading account, you need to take into account that trading with a large leverage in case of unsuccessful trading will quickly lead the speculator to Margin Call, that is, the loss of most of the deposit.

The essence of margin trading

On "Forex", as well as in other areas of trading in financial markets, there are no actual sales. When they say that traders buy or sell any assets, in fact this does not happen, since all transactions are based only on forecasting changes in market quotes. Trading makes money on assumptions that can be determined by many tools on price changes. The trader's income consists of speculative transactions and is calculated on the difference between the purchase and sale of an asset.

The essence of the margin principle is exchange operations with trading instruments, without actual sales or purchases. All transactions take place through arbitration. For clarity, consider an example. The speculator chooses some trading asset and places an order to buy. Another trader opens a sell position on the same instrument. Lot volumes must be the same. After a while there is an exchange. As a result, one speculator makes a profit and the other a loss. The earnings of the first trader will depend on the volume of the lot and the number of points earned.

Margin lending allows traders to significantly increase income. This is due to the ability to set large volumes, which are calculated in lots. Suppose a deal with one whole lot will be 10 cents per 1 point on a microaccount, in standard options this amount will increase 100 times - up to $ 10 with lot volumes of 0.1 - 1 cent or $ 1 for standard types.

Features of margin trading

A loan that is issued by brokerage companies differs significantly in terms of its conditions from all other loan options. Consider its features:

1. Credit funds are issued only for trading. They cannot be used for other purposes.
2. Additional amounts are intended for trading only with the broker that issued them. In exchange trading, including Forex, having registered an account with one dealer, it is impossible to use deposit funds in work with another broker.
3. Margin loan is always much larger own funds trader, unlike consumer, banking and other types of loans. That is, he several times more than the amount collateral or margin.

The margin lending mode significantly increases the total volume of transactions. For example, on "Forex" the size of one whole standard lot is 100 thousand USD. e., or US dollars. Naturally, not every speculator has the necessary sum of money to make transactions. Even average market participants cannot afford such large deposits with high financial risks, against which there can be no insurance, only their minimization.

Margin lending allowed even small market participants to take part in trading through brokerage companies and earn money using leverage. As a result, the total volume of transactions increased significantly.

How to calculate margin?

In exchange trading, the parameters of collateral or margin are very important. When choosing a trading account, it is always necessary to take into account the size of the leverage and the percentage for Margin Call, that is, the level of residual funds before the forced closing of the transaction by the brokerage company.

Depending on the conditions for obtaining a margin loan, this indicator may be different. Somewhere it is 30%, while other brokers have -0% or less. The higher this indicator, which is also called Stop Out, the less opportunities there will be in trading, but if the transaction is closed by force, the loss will be much lower.

For example, a trader's trading account has a deposit of $1,000. When wrong open position, when the market went against his trade, he will be closed at a Stop Out of 30 percent, when the speculator receives a loss of 70%, that is, $ 700, and after the Margin Call is executed, $ 300 will remain on his deposit. If Stop Out according to the trading conditions of the account has a value of 10%, then the loss will be $900, and only $100 will remain.

The formula for calculating the margin is as follows: the margin will correspond to the volume of the lot divided by the size of the leverage.

Variation margin

What it is? Any transaction, no matter how it was closed - with profit or loss, is displayed in the trader's statistics in his trading terminal. The difference between these indicators is called the variation margin. Each brokerage company sets a limit, that is, the minimum value for a speculator's deposit funds. If the level of variation margin in trading falls below these parameters, then the broker's client will be considered bankrupt, and his funds with deposit account written off.

To eliminate possible financial losses, brokerage organizations set special levels on their clients' trading accounts, upon reaching which Margin Call will follow. In the trading terminals, a warning from the broker is displayed that the deposit reaches the minimum balance limit. In this case, the trader has only one option - to replenish his trading account or it will be forced to close with a loss. Margin lending provides for a range of this level within 20-30% of the pledge of funds.

If the client does not replenish his account, then his balance will decrease, and in this case, all positions, if there are several of them, will be closed by Stop Out, regardless of the trader's desire. In other words, by reducing the balance by trading account and the remaining margin of 20-30%, the broker issues a warning to the client - an offer (Margin Call). And then, when the losses reach large values, and only 10-20% will remain in the pledge, but the deposit will not be replenished, he closes the transaction - Stop Out forcibly.

Stop Out Example

How is the forced closing of positions? In practice, it looks like this:

1. Suppose a speculator has a trading account from the "Standard" category.
2. The amount of his deposit is 5 thousand US dollars.
3. As a trading asset, he chose the euro/dollar currency pair.
4. The leverage is 1:200.
5. The standard lot size for Forex is 100 thousand US dollars, that is, the size of the deposit is 5 thousand dollars, multiplied by a leverage of 200.
6. The amount of the deposit in this example will be 10%, that is, 500 dollars.
7. He opened only one deal, but he incorrectly predicted the change in market quotes, and it began to give him losses.
8. Initially, he received a warning in the terminal - Margin Call, but did not take any action and did not replenish his deposit.
9. The deal was closed by Stop Out with a level of 20% set according to the trading conditions of the account. The trader lost $4,900 on the trade. Only $100 left on the deposit.

This example shows how dangerous it is to use a large amount of leverage, and the consequences for the trading deposit. When trading, you should always keep an eye on the size of the margin and open positions with small lot sizes. The higher the margin funds, the higher the financial risks.

In some brokerage companies you can independently disable the service for providing margin trading. In this case, financial risks at margin lending rates will be maximum and amount to 100%, and leverage will simply not be available.

Margin contract

Everybody trading conditions on the accounts that brokerage organizations provide for work are specified in the contracts. Previously, the client looks through them, gets acquainted with all the points, and only then signs.

In online mode, when a trader does not have the opportunity to visit the office of a brokerage company, he gives his consent to the contract automatically when registering a trading account. Of course, there are also organizations that send documentation through a courier or Russian Post. The form of the margin lending agreement is determined by the trading conditions, which spell out all the requirements and regulations.

Short and long positions

Each speculative transaction has two stages: opening and closing a position. For any trade to be considered completed, a full cycle of the transaction is required. That is short position must necessarily overlap with a long one, and then it will be closed.

Types of speculative operations:

1. Trading on the upward movement of quotes is the opening of long positions. Such transactions in trading on financial markets are designated as Long, or purchases.
2. Trading on the falling movement of quotes - short positions, that is, sales, or Short.

Due to the margin lending regime, trading in financial markets has become very popular not only among large participants, such as Central Banks, commercial, insurance funds, organizations, companies and enterprises, but also from private traders who do not have large capitals.

Small speculators can earn relatively small amounts in trading, and in most cases only 1 to 3% of full cost deals. As a result, with the help of margin trading, the total volume of positions increases significantly, and the volatility and liquidity of trading assets increase on the exchanges, which leads to a significant increase in cash turnover.

All positions opened in Long (long) are characterized by the conditions for the upward movement of the market. And short (Short) - for descending. Trades for buying and selling can be opened with different time durations. There are three types of them:

1. Short-term positions ranging from a few minutes to 1 day.
2. Medium-term transactions - from several hours to a week.
3. Long-term positions - can last several months or even years.

In addition to the time period, the trader's earnings depend on the selected trading asset. All of them have their own characteristics and characteristics, and the greater their liquidity, volatility, supply and demand, the higher the profitability of the speculator.

Pros and cons of margin trading

The more leverage a trader's trading account has, the more the financial risks of the transaction increase. Margin lending provides the speculator with the following advantages:

1. The possibility of opening a position with a small capital of own funds.
2. Due to leverage, a trader has advantages in the market and can perform speculative manipulations in trading using a wide variety of trading strategies.
3. The credit margin is provided in a much larger volume of the available collateral and increases the possibilities of deposit funds by tens and hundreds of times.

The negative points include the following characteristics:

1. Margin trading, by increasing the liquidity of the market, increases the price fluctuations of asset quotes. As a result, it is much more difficult for traders to accurately predict price changes, and they make mistakes when opening positions that lead to losses.
2. The leverage used in margin lending significantly increases the speed for generating income, but at the same time, in an unfavorable case, it has big influence for losses. That is, with it you can both earn very quickly and lose your deposit funds.

Professionals advise beginners to be very attentive to the choice of trading account conditions, to use the optimal leverage option in trading and pay attention to the features of assets. It should be remembered that volatility can be not only a trader's friend and allow him to earn quickly, but also an enemy that leads to instant and significant losses.

Free Margin

In any trading terminal, you can see such a parameter as free margin. What it is? Free margin is funds that are not involved in trading and collateral. That is, it is the difference between the total amount of the deposit balance and the credit margin. It is calculated only in open positions during the operation of the order, but as soon as the speculator closes it, all collateral is released, and the total amount of the deposit is indicated in the terminal.

Free margin helps to determine during trading what opportunities are available to the trader, how much and in what volumes of the lot he can still open transactions at the current time.

Conclusion

Margin lending opens up great opportunities for making money in the financial market for medium and small market participants, as well as private traders. Professional advice for beginners Special attention when choosing the type of deposit account, pay attention to trading conditions and the amount of leverage.

Have you ever taken a loan from a bank? If yes, then the principle of margin trading will be clear to you. However, even if for some reason, you have never come across such concepts as loans, loans or loans, I am more than sure that after reading the material below, you will have a comprehensive understanding of what margin trading is.

Let's start right away with the main thing. As you may have guessed, margin trading is the conclusion exchange transactions using borrowed money broker. Please note - not at the expense of borrowed funds, but only with their use. That is, in order to trade using margin, you must have some minimum amount own funds, which will serve as collateral for the issued loan for the broker. We will talk more about the mechanism for providing and using margin below (we will consider this with specific examples).

When trading on margin, a broker can issue a loan not only in monetary form, but also directly in the form financial instruments(shares, bonds, etc.).

Margin is usually expressed as a percentage showing what part of the value of a financial instrument must be deposited to buy (sell) it. For example, a margin requirement of 50% indicates that to conclude a transaction for a certain amount, it is enough that only half of it is on the trader's account. A margin requirement of 20% allows you to conclude transactions with financial instruments, having only a fifth of their value available.

What does the use of margin give a trader? Well, first of all, it is obvious that the additional cash allows him to open a position in a volume much larger than he could afford only with his own funds. In addition to increasing your potential profit, this allows the trader to trade in capital-intensive markets with a high cost per lot. Moreover, margin trading allows you to trade on a decrease in the price of a financial instrument, opening so-called short positions.

A short position is opened by a trader when he expects a decrease in the price of the traded financial instrument. The short selling mechanism is as follows (using stocks as an example):

1. A trader borrows n shares from a broker and sells them at current price on the exchange;
2. When the price of securities is expected to decrease, the trader buys back the same nth number of shares at a lower price;
3. The trader returns to the broker the n-th number of shares taken from him, and puts the remaining money in his pocket (this is his honestly earned profit).

Thus, the more the shares fall in price, the cheaper they can then be redeemed, and the greater the profit will be deposited on the trader's trading account. In fact, all of the above operations in most trading terminals are performed automatically. That is, purely technically, you do not need to first sell securities and then buy them back again, you just need to give an order to the broker to make a short sale, and then just close the position when a certain profit is reached (if the price really drops), well, or a loss (if price will go up).

Margin trading is often also called leveraged trading. In essence, leverage is a simple ratio of a trader's own funds to the amount by which he can open a particular position.

For example, a leverage ratio of 1:2 (1 to 2) allows a trader to open positions for twice the amount of his own funds. A leverage of 1:10 generally allows you to trade volumes that exceed the trader's trading capital ten times.

So a 1:2 leverage corresponds to a 50% margin, and a 1:10 leverage is the same as a 10% margin requirement.

Benefits of margin trading for the trader and for the broker

Due to the use of margin, a trader can open positions of a larger volume than his own funds allow. And this, in turn, means potentially large profits for him. In addition, as mentioned above, thanks to the use of margin (or leverage), a trader can trade in such markets, where under other conditions he would simply be ordered to enter (due to a banal lack of money even to buy one lot).

An example of such a capital-intensive market is the international foreign exchange market.FOREX. Here, the cost of one lot is several hundred thousand dollars, which is far from affordable for every trader. Therefore, the vast majority of people trading onFOREX do this through dealing centers that provide completely wild leverage rates of 1 to 100 or even sometimes 1 to 1000.

In addition, due to the use of margin, traders have the opportunity to speculate not only on the growth, but also on the decline in prices (thanks to the opening of short positions described above).

Brokers, of course, also benefit from margin trading (otherwise, why would they bother with lending to their clients). Firstly, the provision of such loans is beneficial for the simple reason that the interest on them significantly exceeds the bank rate and it is much more profitable for a broker to invest their money in lending to traders than, for example, to keep them on a bank deposit.

Margin trading significantly lowers the entry threshold for traders into the market. And this, in turn, means a significant influx of more and more new clients from novice traders. Well, the fact that the use of margin increases the volume of trading operations, means an increase in the broker's profit due to commissions (as a percentage of the transaction volume) and spread.

Thus, margin trading can be beneficial for both traders and brokers. However, if brokers always remain in profit (or almost always), then this type of trading, in addition to potential profits, can also promise big losses for traders.

Risk for the trader

The larger the margin provided by the broker, the higher the risk for the trader. This is because the higher the leverage to equity ratio of a trader, the more each point of price movement will cost him. It’s good when it works for the trader and the price moves in “his direction”, but in the case when the price change is not in his favor, it can lead to the complete destruction of the trading account.

Let us explain the described situation with examples. Let's say a broker provides a trader with a leverage of 1 to 5. The size of the trader's own funds in his trading account is $5,000. Thus, a trader can open a position of $25,000 (five times the amount he has).

He decides to go long XXX & Co. One share of XXX & Co costs $250, and if the trader traded only with his own funds, he could buy only 20 of these shares. But using the broker's borrowed funds (margin), he can open a position five times larger and buys 100 shares.

Further, suppose that XXX & Co's stock declined $50 to $200 each. The value of the trader's open position will then decrease to 200 x 100 = $20,000, or $5,000. That is, in this way he will lose all his trading capital, which was just the amount of $ 5,000. What will the broker do? In order to return the money lent to the trader (which, as you understand, is the remaining $20,000), he forcibly closes the position. Thus, the broker gets his money back, and the trader is left with nothing.

Now let's look at exactly the same situation, but with less leverage. Let's say the broker sets a margin requirement of 50% (which, remember, corresponds to a leverage of 1 to 2).

In this situation, in order to buy 100 shares at $250, equity trader should be $12,500 (the other $12,500 is lent by the broker).

Then a similar decrease in the share price to $200 and a decrease in the value of the position to $20,000 will mean that another $7,500 remains on the trader's trading account and his position remains open. Which, in turn, gives him a chance to recover losses and earn in the event that the share price of XXX & Co suddenly starts to rise again.

How leverage works

As mentioned above, the broker provides a trader with a loan only if they deposit a certain amount of their own funds (in accordance with margin requirements). For example, when margin requirements broker at 50%, the trader is given a loan in the amount of half the cost of the financial instruments he purchases (the second half is the trader's own funds).

The funds on the trader's trading account, in this case, are for the broker nothing more than a guarantee for the loan issued. And in the event that a loss on an open position "eats" all the trader's money, the broker forcibly closes this position in order to have time to return his money (which he lent to the trader to open this position). Such a forced closing of positions is called a stop-out (from the English stop out).

When is a margin call placed?

But before closing the position by stop-out, the broker notifies the trader of his intention, setting him a margin call requirement (from the English margin call). A margin call gives a trader the opportunity to replenish their account, thereby avoiding closing the position.

To give a trader certain time to replenish the account, as well as in order to secure their own funds, the broker places a margin call not at the very moment when the trader's money runs out completely, but when a certain limit value is reached.

For different brokers, these so-called boundary values ​​may differ, but in most cases, a margin call is set at the moment when the amount of own funds on the trader's trading account reaches a value in the range from 30 to 10% of the initial amount that was involved when opening a position.

For example, according to the terms of the broker, a margin call occurs with a balance of 30%, and a stop out with a balance of 10%. In this case, if a trader opens a position for $20,000 with a leverage of 1:2 (i.e. he uses $10,000 of his own and $10,000 of borrowed funds for this), then when the loss on it reaches $7,000, he will be set a margin -call (because he will have $3,000 left in his account, which is 30% of the initial $10,000). And when the loss reaches $9,000, the broker will close the position by stop-out, while returning his $10,000. And he will transfer the remaining $1,000 to the trader's account, having previously deducted the interest (or commission) due to him from it.

findings

Summarizing the above, the following conclusions can be drawn:

1. Margin trading allows a trader to extract potentially large profits from a relatively small amount of money (than larger size leverage, the less own funds are required on the trader's account);
2. At the same time, along with the growth of potential profit, the amount of risks that a trader using leverage takes on increases in exactly the same proportion (and the larger this leverage, the greater the risks);
3. The possibility of large profits awakens unnecessary excitement in the soul of inexperienced traders, and high risks lead to the fact that a newbie who is carried away simply drains his entire deposit. Therefore, it is extremely contraindicated for beginners to engage in margin trading;
4. When trading on margin, special attention should be paid to money management issues. It is necessary to clearly limit the amount of risk in each transaction (for example, by placing stop loss orders).

It is very important to keep in mind that the $50,000 calculation is for trading with full time and $5,000 - for part-time trading based on the assumption that you will trade on margin. Margin trading is
is an essential part of profitable day trading. Trading on margin means that you are allowed to take on positions that are twice as large as the amount you have in your brokerage account. The brokerage firm lends you money and charges a percentage for it. The beauty is that if you don't hold the position all night, you won't have to pay any interest. For a day trader, this is a kind of free money. For example, if your deposit with an online brokerage firm is $50,000, then in reality your purchasing power valued at $100,000. If you buy a share for $100, then you can buy 1,000 of those shares. If you resell the shares on the same day, you will not have to pay interest on the margin. But if you leave the shares overnight, you will be charged about 8% per annum, depending on the brokerage firm and the current interest rate. At this rate, you will be charged a few dollars per night with a stock value of $100,000 and only $50,000 in your account. The interest charged on you decreases as the amount you borrow increases.
However, there is a dangerous side to trading on margin. You will have to answer 100% for losses caused to borrowed money. It's just a loan and nothing more. It's like your local bank lending you money to start a business. Imagine now that the business has gone bust. Not only will you lose your entire investment, but you will also owe the bank the rest of the loan, despite the apparent profitability of the business. It's the same with trading. But, unlike bank loan, the danger here is that there is no way to fix the situation with the margin. As long as you have money in your account, you can count on 2:1 - the broker will lend you the amount without question. Margin percentage is a good source of income for brokerage firms. So what's the catch?
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A large number of stock and exchange terms frightens unprepared inhabitants, forcing them to consider the stock exchange a dark forest where it is better not to meddle. Broker Margin- one of these concepts, evoking thoughts about something purely speculative and heartless. Meanwhile, the term "" is closest to " Operating profit”, and this is one of the most justified financial instruments in the world.

Margin is a pledge for receiving a disproportionately larger amount of money to be traded, which differs by depositing into the account of the creditor and holding it, regardless of the outcome of the borrower's transactions. Margin differs from markup in that it is the difference between selling price and profit, while markup is the difference between cost and selling price.

Margin trading

Many traders have heard of the existence of such a thing as margin trading and are aware that due to this phenomenon, many traders with small starting capital have gained access to the markets. In this article, we consider in detail the concept of margin trading, its essence, advantages and disadvantages, as well as those associated with this activity.

The essence of margin trading is that a trader (client of the company) receives a certain loan from a broker for the purchase of assets. At the same time, the client leaves a certain amount collateral, which can be equal to the minimum deposit with the broker or any amount that exceeds it. Actually, the security of the loan is the deposit of the trader.

It is important to understand that not only cash, but also assets can act as a loan. In this case, a deposit from the trader is also required. Often, instead of the term "margin trading" another term is used - " trading with leverage».

Margin trading is a concept that includes all transactions with the so-called leverage.

- represents the borrowing of money or other assets allocated when buying and selling. Brokers that provide their client with access to the market can provide him with a permanent loan ( margin) to buy more assets than he can buy.

Leverage is the ratio of your deposit to the allocated loan. For example, a leverage of 1:100 means that the broker, when you make a deposit, will allocate you an amount 100 times more than your deposit.

The fact is that margin trading is a kind of agreement and the trader's obligation to close the deal. The credit is returned automatically when the purchased items are sold. This method work is good in that the transaction volumes are increasing, despite the fact that basic capital small. Below we will talk about where brokers get funds for leverage, but for now, watch the video tutorial about margin and margin trading:

Video: What is margin and leverage

Prerequisites for the emergence of margin trading

Trade on stock market occurs mostly without the use of leverage. The fact is that the value of shares makes them affordable for most traders. However, in order to receive a significant income from trading in the stock market, you must have a large deposit.

As for Forex, it is impossible to work here without leverage.

The fact is that minimum size position in this market is from 100,000 euros. For private traders, this amount is unbearable. It is for this reason that margin trading appeared at the time.

Leverage varies in size. For example, some brokers offer lending at a rate of 1 to 25 (that is, for every dollar of the trader, 25 dollars of the broker are offered). Many Western regulators (and Asian ones too) prohibit controlled brokers from increasing leverage and set its limit. We did not simply indicate 1:25 as an example. This leverage is the highest in many countries.

Margin trading is quite an interesting and profitable invention for both brokers and traders.

Basic transactions with leverage

Using leverage, you can make transactions both for an increase in an asset and for a decrease.

When opening long position(purchase), the broker provides the trader with a certain loan (according to the size of the leverage). At the same time, part of the funds is invested by the trader himself (the broker supplements the required amount to open a position). The same applies to such an operation as a short position (sale).

By the way, as for the sale, in the Forex market it is conditional, as separate operation. In fact, there is no selling in Forex. The point is that there there is a trade currency pairs.

• If you buy, for example, an asset such as , you are purchasing a certain amount of euros for a certain amount of US dollars in accordance with the current exchange rate.
• When you sell the EUR/USD currency pair, you are actually doing the opposite. That is, you buy a certain amount of US dollars for a certain amount of euros in accordance with the current exchange rate.

Margin trading in the stock market

Credit requirements are largely determined by the mobility of instruments, which implies the possibility of paying a short-term loan on time, the ability to turn them into money. The assessment is made using the coefficient absolute liquidity(sufficiency of the most liquid assets, for quick settlement of the current loan, "instant" solvency) and coverage ratio (current assets compared with the terms of short-term obligations).

After the transaction, the trader is already deprived of the ability to independently manage the instruments and the money acquired from their movement and gives the margin to the brokerage company. The risk manager of the company makes forecasts and monitors the current instruments included in the trader's portfolio. Provided that the losses are too great (1/2 of the margin), he can turn to the merchant to pledge more funds. This operation is called "margin call", that is,margin requirement. If funds are not received, and the loss increases, the broker has the right to close the position without the client's order. After the position is closed, the difference between the buy and sell levels is calculated, and the security deposit is released plus the result of the transaction. If the result is positive, the trader will receive back funds for the amount of profit more than he pledged, if the result is negative, only the remainder will be returned, or nothing will remain of the pledge.

The trader does not have the ability to prevent the closing of positions by the broker, only his right to submit an order to buy or sell is taken into account, which is enough to conduct transactions.

Forex Margin Trading Example

Suppose a trader predicted an increase in the euro. He decides to buy the EUR/USD currency pair. In order to do this, you need to invest 100,000 US dollars in the deal. Naturally, for an ordinary trader, such an amount is unbearable. A dealing center comes to the rescue, which provides leverage.

• If a trader's deposit is $200, he needs to take a leverage of 1:500 to buy a lot. To buy 0.1 lots, a leverage of 1:50 is sufficient with the same deposit.

On the one hand, margin trading allows a wide range of traders to gain access to financial markets. And this is a definite plus. But on the other hand, this type of lending by a broker carries certain risks, for example, the situation -.

What is the main risk of margin trading? Despite the fact that brokers and dealing centers lend significant amounts to traders, they are not inclined to lose their money. Accordingly, when opening a position and the market moves against the forecast, the entire risk lies solely with the trader's funds, while the broker's funds remain "frozen" in the transaction.

Best FOREX brokers

• Alpari

Professional Forex the broker has a very wide functionality and huge list assets, including stocks, energy, futures, commodities other. Regulated VFSC and in Russia CROFR. Recommended deposit to open an account $250 .

The broker provides a professional trading platform and Better conditions. More than 1000 assets in total. FinmaxFX provides very low commissions, lightning-fast order execution, all Forex market assets, leverage up to 1:300.

Official site:

The leader in terms of the number of clients and trading volume in Russia is a broker. The company develops not only the Forex market, but also investment opportunities, such as investments in traders, in trust management, gold coins and securities. The site has a huge training base, daily analytics, financial calendars, webinars and more. Since 1998, the broker has received many well-deserved awards and has international recognition.

The oldest Forex broker offers the largest training base, academy and various courses. Broker works over 20 years, whose liquidity providers are largest banks How Barclays, JPMorganChase, HSBC other. In addition, the broker offers on its open and professional trading platform stock trading, stock indices, goods, energy resources, cryptocurrencies, etc.

Thus, you can earn not only on currency pairs, but also on the most famous securities and other assets. Minimum deposit to open an account $200 .

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Kitchens and secrets of leverage

How much leverage can a broker afford and what is the norm? These questions are quite normal, since the variety is great, some provide a leverage of 1:3, and someone 1:1000.

Any logic and common sense they say that the real leverage cannot be large and in the stock market it does not happen on average more than 1:25. Now almost all brokers offer leverage from 1:100 to 1:500. But the larger your deposit, the less leverage the broker can give. In this case, it can be assumed that the broker does not bring only the smallest traders to the market and, in general, this may not be necessary, especially when the transaction amount is only $10. Therefore, the leverage is “virtual” and the broker itself does not risk anything and does not have to provide this amount. For the trader, everything is saved real conditions market and work. If we talk about large clients with deposits over $30,000, the leverage is already shrinking.

If you ask such questions in brokerage companies, then consultants will answer with templates, since in fact this is some secret of the broker himself, the secret of the company - where does she get the money from, with whom does she work and what percentage does she have.

We will assume two options for the occurrence of amounts for the credit leverage.

1) Your broker simple kitchen, and based on the fact that traders lose more often than they earn, or on the fact that the greater the leverage, the faster the client will lose the deposit, or on the fact that if the first two "If" do not work, you can help the client merge with the help of simple dealer tools, well, or just not to pay very lucky guys, just gives you this leverage from yourself. That is, it multiplies your money by 500. In this case, you get virtual money, and it would be good to understand that your deposit in such an office is also quite virtual.

2) Your broker really brings you into the market with such a leverage, that is, to the liquidity of the provider (s). This is where it becomes more interesting, since in retail forex there are leverages up to 1:1000 (or maybe more), and liquidity providers, especially after reviewing their risks due to a surprise from Swiss franc, they give 1:50, well, if you really ask, 1:100 to these same retail brokers. And here, too, there are options, for example this: Since the broker opens one account with the liquidity provider, and not a thousand separate accounts for each client, then the broker deals with the risks within this one large account. That is, the broker has 100 clients for $1000, and the liquidity provider, based on such a client pool, has one account of $100,000 (100 * $1000), active clients from this hundred are 20 people, and the rest, according to statistics, they just put money in and forgot about it. This already makes it possible for the remaining active traders to trade at the moment with a leverage of 1:500, simply using the free collateral on the broker's account. Well, to this you can add that 10 of our 20 active ones do not take more than 1:50 leverage, as they are conservative, and we will have some more free margin for freedom of maneuver. Plus, the broker usually has some more of their money in the provider's liquidity account, just in case, especially when the broker first opened. Here is a simplified model of what and where it comes from.

Where does the liquidity provider get this leverage of 1:100?

These leverages are provided by the liquidity provider to the prime broker, through which the LP settles with liquidity providers (end counterparties for transactions) and does this at its own expense and the specifics of the settlement scheme for transactions. The size of the leverage is dictated by the fact that, with a certain volatility and liquidity of the market, your transactions would have time to close by stop-out without going over the “0” mark, that is, without driving the broker into debt to the liquidity provider. And even if the broker turns out to be indebted to the provider, then there is nothing to worry about, since the broker is obliged to repay such a debt from his own funds (Or not to repay, as we saw with the same franc).

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The idea behind trading on margin is that you can use more money than you actually have on hand. When using margin, the main thing is to learn how to manage your risks at any given time. Margin is not recommended for novice traders or those who cannot consistently make money on the market. In this article, we will look at one of the margin day trading strategies.

Why is it better for day trading?

Trading on margin is an activity that requires constant attention. Positions need to be monitored more closely than a 2-year-old son in a crowded supermarket. With day trading, you can manage up to 4 times your own funds. This allows a person with a very small account balance to trade like a serious trader . Almost every beginner thinks that trading on margin is better because he has more money at his disposal. But it's not. using margin is better, because the trading process itself requires increased attention from you. Unlike swing traders, who are exposed to overnight news or macroeconomic events during the day, you, the day trader, are locked into your position every tick of its existence. You are forced to actively manage margin because you are actively managing your position. This reduces the likelihood of significant price fluctuations that could ruin your trading account.

Ability to instantly increase or decrease position size

When you get lucky in the market, you start to feel like Michael Jordan during one of the 6 championships with the Bulls. It seems that no matter what deal you open, you will certainly be among the winners. But everyone will tell you that when you win in this business, you need to step on the gas pedal; and when things don't go so well, then tighten your belt. The ability to instantly increase or decrease your risk profile often separates the average trader from the good. For example, you had a 200% short position that you planned to hold for a year. But after 9 months, you find that your account has dropped by 50% due to overuse of leverage. Should I just close such a position? Yes, it can be done; but what will you do at that moment? Will you use additional margin to win back losses? Or reduce your investment because you're not sure what you're doing? If you reduce the margin you use, it will take three times as long to get back to breakeven. Do you see how agonizing such reflections can be? Day trading allows you to cycle your margin up or down on a weekly or even daily basis. Let's reproduce the same scenario but for a day trader. The trader was losing money 5 days in a row. It seems to him that he is confused, and his account balance has decreased by 10%. He decides to reduce the size of the positions to the level of his own funds until he can compensate for the losses. It takes the trader 3 weeks to do this. Very quickly, he returns to trading without restrictions.

How does the situation get out of hand?

Now you are probably asking yourself the question: "If using margin in day trading is a good thing, why do so many people have such significant difficulties?"

Day trading allows you to:

1) focus on your trading

2) quickly adjust the used margin based on trading results.

So why do so many lose? Simply put, day trading gives you a lot of control over your trading, but it can also lead to overtrading. The ability to uncontrollably open many transactions can be disastrous for someone who has fallen into a losing streak. Add four times leverage to an unlimited number of trades, and you will understand where such a number of lost accounts come from.

Let's take an in-depth look at the hard and simple rules that work well for intraday trading:

Use margin only after 3 consecutive months profitable trading inside the day.

Use only 10% of available margin on any single trade. So, if you have 2,500 equity, or 10,000 with a 1:4 margin, use only $1,000 per trade.

Open no more than 3 trades at the same time. With the numbers mentioned in the previous example, your maximum investment will be $3,000, which is 20% more than your own funds.

Never lose more than 2% of your own funds in one trade. That is, in each transaction, the maximum loss should not exceed 2.5%.

Never leave position overnight. If you are engaged in day trading, then do exactly that - trade intraday.

If the week is unprofitable, it is necessary to reduce the used margin by 25%. Continue linearly reducing until a profitable week appears. Use the same approach for a reverse margin increase to the maximum. For example, if the week was unprofitable, reduce the used margin from $10,000 to $7,500. If the next week is unprofitable, reduce this limit to $5,000. Once you reach your balance of $2,500, lower your limit by 25% weekly. As you limit the amount available for trading, your concentration on trading will increase, and you will return to profits again. There is no better motivator than simple survival.

Having access to margin gives the illusion that unlimited wealth is near. If you don't take action, you will begin to become attached to that money as if it were your own. In fact, margin is a terrible weapon in the wrong hands. She needs to be handled with care so that the fear of what she can do to you (in a professional and personal sense) does not allow such an attachment to arise.

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