Hello, I am curious why we need margin to open position? Why instead of margin which depends on the notional value, we don’t use some fixed amount?
When I open a position and it creates negative PnL, this position will eat up all my equity… If I deposit more money, it will eat that as well.
So basically after stop out I am left with this margin. This seems counter intuitive to me. I would expect that this position eats this margin, and when there is no more margin it is forecfully closed. But instead, it will eat everything expect this margin (so I need to use stop loss), and when the margin is all that is left, it will stop me out.
I am basing my question with respect to this article:
babypips. com/learn/forex/what-is-margin
Why margin would be notional value / leverage? Why, for example, not notional value / leverage * 3?
Think of margin as a security deposit. With leverage, you’ll borrow money from the broker to control a larger position. The broker wants some money from you upfront-a guarantee to cover potential losses. This is the essence of margin your skin in the game.
If the broker suddenly can’t honor your stop loss (in a very fast-moving market, e.g. if there’s “news”) they don’t want to be left with you owing them money.
I’ve been burned by over-leveraging as a newbie—margin isn’t extra money, it’s a buffer. If you treat it like fuel for safe, scaled trades rather than a free pass, you’ll avoid wipeouts
it’s like a security deposit, similar to when you apply for a loan. You need to have a certain amount in your account to qualify. Margin works the same way when you want to use leverage with a broker. It ensures you have enough funds to cover potential losses, acting as a safety net for both you and the broker.
Well, in total fairness this is a good question. I think the evolution of ‘capital market’ naturally evolved into having leveraged products. Imagine even a mortgage is given on ‘margin’. So very very good question, but I believe the subject here is about finance and economics more than specifically trading.
For what matters, remember to use margin wisely. And also remember, not just cos your broker offers it you have to use it. hehe I hurt myself many times before!! lol
How can a nation incur debt if it has the ability to create and govern its own money? The United States pays interest on the funds it borrows. But who are they borrowing from? Are they borrowing from themselves, and if so, who receives the interest payments since it’s their own money? My Apologies, I lost focus for a moment.
That’s a great illustration. Individuals wish to purchase a house costing 100,000 dollars, yet they do not possess the full 100,000 dollars needed for the purchase. However, they must still meet the requirement of putting down 20 percent as a down payment for the purchase.
Not to go off topic too much, but there are several reasons. Printing too much money causes inflation and devalues the currency. The U.S. sells treasuries to investors, banks, and foreign governments at a lower rate than the potential loss from inflation and currency depreciation. So, even though the U.S. issues its own money, it borrows from the public (both domestic and international) to avoid destabilizing the economy and to maintain trust in the currency and financial system.
Yes, this is true, but there’s a simpler explanation: if nations truly controlled their own currency, there would be no impoverished or underdeveloped nations. Imagine being homeless and going into a bank to ask for a loan to purchase your essentials, such as food, clothes, and shelter / country development, but being told no, but it’s “your money” / “your country’s currency.” The central bank, they claim, is owned by the nation.
Printing money and distributing it like the president of Zimbabwe is never a good idea. However, printing money for your country’s development, as the United States did in the beginning and as many other nations have done, is never a terrible plan. It looks like the system is rigged.
Margin exists to give traders more buying power with less capital. Instead of needing the full amount to open a trade, you only need to deposit a small portion; this is called the margin. It allows you to control larger positions and potentially earn more profits, but it also increases your risk. Think of it as a double-edged sword: it amplifies both gains and losses. That’s why proper risk management is essential when trading with margin.
That’s a great illustration. Individuals wish to purchase a house costing 100,000 dollars, yet they do not possess the full 100,000 dollars needed for the purchase. However, they must still meet the requirement of putting down 20 percent as a down payment for the purchase.