margin

[pipzone]

Hello Everyone,

I was hoping someone would explain what margin to use.
20:1 ect
Thanks

[rhodytrader]

Think of margin as a security deposit.

When trading forex your are applying leverage, which is the 10:1, 20:1, etc. part of it. That means using 1 to control 10, 20, or whatever. Margin, or the margin deposit, is that 1 value.

Let me use a mortgage as an example. To buy a house you probably aren't going to pay 100% in cash. You will put down x% and borrow the rest. That downpayment is the bank's security deposit in the case you fail to make payment and they have to foreclose. They would take the property and sell it. By making you put up a downpayment, the bank protects itself against a decline in property value should they have to foreclose on you.

Your broker is essentially doing the same thing. They are protecting themselves against losses you might make since theoretically you could lose more than your account value - potentially leaving them holding the bag. So they make you put up x% in margin as security deposit.

Does that help?

[topgun]

Here is another example aside from Rhody's great explanation. I seem to be giving this link out on a daily basis. Babypips also has an excellent explanation of how margin & leverage work.

The amount of margin required on Oanda depends on how much leverage you decide to use (See Link Below). Other brokers are different but they give good explanations.

OANDA FXTrade - Margin Rules

http://www.babypips.com/school/know_your_ps_and_ls.html

Originally Posted by pipzone

Hello Everyone,

I was hoping someone would explain what margin to use.
20:1 ect
Thanks

[pipzone]

Thanks Guys. Great explanation