Margin and Leverage in Forex
Starting forex trading, in the previous article CONCEPT FOREX TRADING, we explain the concept of trading and the basic principles of forex. Next we discuss Margin and Leverage. Both of these terms must be known because it deals with Forex Trading with SPA system.
We simplify SPA system as forex trading WITHOUT through the interbank line. If forex trading via interbank line (only represented by Bank) then the required margin of $ 100,000 for transactions per lot. Meanwhile, forex trading with SPA system can be done by anyone or commonly we call as a retail trader.
Retail traders can do forex trading as do interbank only with margin of 1% of margin needed in interbank, that is $ 1,000. So with that, retail traders have a leverage of 1: 100. Then what is Margin and Leverage?
When opening a trading account at a broker, the client must choose what leverage you want to use. So that later can be determined margin client required to be paid to broker. Also, the client must choose an account type that results in the minimum lot used.
Is the funds needed to be able to do 1 lot transaction. Through the SPA system, margins for retail traders become smaller and the rest are considered as loans by forex brokers.
We do not have to think about the remaining value the broker will bear. It only results in the emergence of Swap if our transaction overnight. This swap value depends on the number of lots that we transaksikan but the value is still fairly large. Current forex brokers are starting to free their clients from swap charges due to competition. We will discuss Swap in future articles.
This margin rate is affected by the type of account selected.
This term is more defined as leverage. But it is simpler to leverage or raise the value per tick from the transaction price difference. The above is little explained, that retail traders are welcome to choose the desired level of leverage. The effect, in the process of calculating the transaction (sale and purchase) later, the value of price changes that occur larger. For example, if transaction without SPA system change 1 tick is value $ 1 then for transaction with SPA system, 1 tick can be $ 10.
The current forex broker competition is more likely to provide high leverage levels and low lot rates. So wise choose the type of account and leverage that will be used.