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Advantages of trading

Origins of FX

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Margin trading

 



 
Margin trading

Trading on a margined basis in foreign exchange is not a complicated concept as some may make it out to be. The easiest way to view margin trading is like this:

Essentially when a trader trades on margin he is using a free short-term credit allowance from the institution that is offering the margin. This short-term credit allowance is used to purchase an amount of currency that greatly exceeds the account value of the trader. Let's take the following example:

Example: Trader x has an account with EUR 50'000 with ACM. He trades ticket sizes of 1'000'000 EUR/USD. This equates to a margin ratio of 5% (50'000 is 5% of 1'000'000). How can trader x trade 20 times the amount of money he has at his disposal? The answer is that ACM temporarily gives him the necessary credit to make the transaction he is interested in making. Without margin, trader x would only be able to buy or sell tickets of 50'000 at a time. On standard accounts ACM applies a minimum 1% margin. By trading with ACM, trader x has the capacity to make transactions up to 5'000'000 EUR at a time.

 
 
 
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