Quote:
Originally Posted by jmca
I understand what margin is used for, but I'm confused how margin plays in gains & losses.
For example:
100:1 leveraged account
1 standard unit = $100,000 correct?
200:1 leverage account
1 standard unit STILL = $100,000 correct?
So when booking a P/L, they are both the same. Margin plays a roll in how much of your own money you put up, not increases or decreases the $ of your P/L. What it does do is increase/decrease your Cash-on-Cash% return, giving you a larger +/- ROI%.
Am I correct in this?
|
Margin plays a factor in your profit/loss because as you increase the amount of lots you use, the margin increases.
leverage determines how much margin capital you need on hand to enter a trade
So, required margin is Lot size x price x leverage
so, 100,000 x 1.35 x 0.01
100k lot, price of the current currency, and 100:1 leverage.
if you move up to 2 lots, or 200k then your margin will increase, but so will the amount of money per pip.
100k = 10 bucks a pip
200k = 20 bucks a pip
So yes margin kinda plays a role in your roi, but only in that you need that much cash to enter the trade.