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What is margin trading, leverage and pledge

What is margin trading, leverage and pledge

2/17/2010 6:17:27 PM

In the Forex Market speculative transactions are conducted using the principles of margin trading, first introduced in 1986. Appointment of margin trade - in bringing to market investors, who have got less than a million dollars - is a standard lot that is used to trade in the Forex Market.

The meaning of margin trading is that, in order to complete the deal you have no need for a total amount of the contract value, you will be enough to make a pledge, that is margin, which is generally about 1-10%, more commonly used value 2-5% of the total amount of a contract. In other words, when making a transaction involving the purchase or sale of currency you credit your financial partner of the missing sum. Forex traders say in such cases, that you are given "leverage".

The value of "leverage" on the Forex market is given by the agreement concluded by the client and the bank or brokerage firm, providing him access to the Forex Market. Typically, such leverage is 1:33, 1:50 or 1:100. In our market segment, set the "leverage" equal to 1:100, ie, introducing deposit equal to 1,000 dollars, you can make transactions in an amount which is equivalent to 100 thousand dollars.