Forex Leverage and Margins
First things first. What is leverage? Leverage refers to “the use of a small initial investment in order to control a much larger one, additionally gaining a high profit compared to the investment, and reducing one’s liability for loss, if any”.
Leverage plays a very important role in the forex market. If you’re still not aware, you need to know that while trading in forex, you make transactions worth multiples of $100,000. An investment that huge is extremely difficult to arrange and handle. This is where leverage comes in. You can (now easily) obtain what is known as a margined account from your brokerage. Through a margined account, you can control investments up to 100 times the deposit.
The minimum deposits vary from broker to broker, and so does the rate per lot (a lot is essentially a ‘packet-size’ of $100,000). As an example we can say that your broker is offering you a margined account with a margin (deposit) of $2000, and a lot rate of say 1% (meaning your deposit needs to be at least 1% of the amount you wish to trade), which means that you can control $200,000 with an initial investment of a mere two thousand dollars.
Two more concepts come in at this point. The first is Margin Call. If at any time during the trade, you run into a loss that is approaching the value of your deposit, your broker may do a margin call i.e. he may call and ask you to either deposit more money, or close the position/trade to limit both his risk as well as yours. The second concept is that of Variation Margin. This is based on the study of your current profits and losses on any open trades. This is better explained using an example: Say you’re playing a trade of $500,000 and your account deposit is $10,000. To play that trade you use $5000. Unfortunately you run up a loss of $5001. Under such conditions, the broker may do a margin call. Even though you still have $4999 in your account, the broker uses it as security. Also, letting you use it in a situation such as above will be very risky.
Margin rates are very variable. They vary from broker to broker of course, but may even very from weekdays to weekends with the same broker.
For finding an interesting opportunity of a forex managed account preposition deal, I would recommend you to visit ForSeriousProfits.com. It comes directly from a friend of mine who has been actively trading in forex since last 5 years. You can get this one time opportunity to tie up with him where he manages your account and promises you a 3% daily return on investment. Minimum investment eligibility is $2000. More details can be found here.
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