Thursday, February 18, 2016

Risks of Margin Trading

Margin trading is a technique that most traders use to control bigger market positions that is greater than the amount of their initial investment. Through the use of leverage, the trader is able to amplify their investments, and take advantage of a bigger capital.

Say for example, the trader currently has an amount of $100 in his trading account. If his broker provides a leverage of 1:400, then he would be able to amplify his initial capital of $100 for up to 400x! Basically speaking, with that kind of leverage, the trader would be able to buy securities worth up to ($100 x 400) = $40,000! 

However, despite all of the attractive advantages margin trading offers, it also carries a significant amount of risk. Trading on a margin definite does amplify your total trading investments, but so does your losses and, when not observed properly, might even leave you on a negative balance.

So before you dive into margin trading, make sure that you fully understand all the advantages and the risks that are associated with it, so that you won’t end up having a negative account balance. Even if you think that you are ready with margin trading, you should only expose yourself with the amount you can afford to lose.

Equip yourself with all the necessary knowledge you need to reach success in forex trading by reading our educational blogs. Find out who the best forex brokers are, visit to find out!

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