Currency
Trading on Margin
High Leverage and low margin can magnify or lead to both substantial profits and losses.
One of the characteristics of currency trading is the huge leverage traders have
at their disposal. Trading on margin means that the trader does
not need to deposit the entire amount of the transaction. A portion
of the value of the transaction is provided by the brokerage firm
where the trader opened his account. For stocks, the margin requirement
is 25% for positions that are entered and closed during the day
and 50% for positions carried overnight (from one trading day to
another). That means that a trader only needs to deposit 25% or
50% of the value of the trade respectively. Consequently, the leverage
enjoyed by stock traders can be from 2:1 to 4:1.
How does the
margin requirement for currency trading compare to stock trading?
To trade currencies with Currency Trading USA, the margin requirement
is only 1%. That means that a currency trader only needs to deposit
$1,000 for every $100,000 of currency traded. Thus, the leverage
is 100:1, much greater than for stock trading. A leverage of 100
to 1 means that every 1% move in the value of the foreign currency
exchange rate gets multiplied one hundred times.
Even though
the minimum margin requirement with Currency Trading USA is 1%,
the online currency trader does
not have to take advantage of the entire amount of leverage he has
available. The greater the leverage used, the more speculative the
trading becomes. The amount of leverage the currency trader should
use depends on his risk tolerance and on his desire to take risk.
No matter what the amount of leverage that the trader decides to
use is, clients who open accounts will not have debit balance risk;
that is, a client can never lose more than he deposits in his account.
This is another big advantage of choosing Currency Trading USA as
your foreign currency trading partner.
In the free
training that you will receive as a customer, you will be taught
how to determine how much margin you should use when trading currencies.
Free
30-day trial of our currency trading platform - learn to trade the
foreign currency market...
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