About margin trading and its main principles

To carry out the operations of buying and selling on financial markets, hundreds of thousands of dollars were previously required. But what should a trader do if he does not have such amounts of cash? In this case, brokers offering marginal trading, come to the rescue.

Basic principles of marginal trading

It is the collateral amount that allows an investor to obtain a loan for conducting commercial transactions. When traders buy and sell assets, they are not determined to purchase a real currency. They make money only the exchange rate difference. That’s the basic principle of margin trading.

Currency arbitrage is the operations for getting income by a trader from differences of the exchange rate. The customer contributes funds to the brokerage company’s account. They are a margin. If the asset that is being traded is popular, the requirements for the margin are low. When the asset has low liquidity, the margin may significantly increase. In Forex, it’s often not more than 2%, while in the stock market, it can be up to 50%.

Marginal trading helps increase the number of transactions. One lot is 100,000 base units of currency. A lot of investors use mini (0.1 of the standard lot) or even micro lots (0.01 of the standard lots). This is very convenient for those who do not have a lot of funds, especially since one can get quite a decent profit by trading them. Read about Avatrade to find out more about the margin trading.