When an investor uses a margin account , he or she is essentially borrowing to increase the possible return on investment. Most often, investors use margin accounts when they want to invest in equities by using the leverage of borrowed money to control a larger position than the amount they'd otherwise by able to control with their own invested capital.
These margin accounts are operated by the investor's broker and are settled daily in cash. But margin accounts are not limited to equities - they are also used by currency traders in the forex market.
Investors interested in trading in the forex markets must first sign up with either a regular broker or an online forex discount broker.
Once an investor finds a proper broker, a margin account must be set up. A forex margin account is very similar to an equities margin account - the investor is taking a short-term loan from the broker.
The loan is equal to the amount of leverage the investor is taking on. Before the investor can place a trade, he or she must first deposit money into the margin account. The amount that needs to be deposited depends on the margin percentage that is agreed upon between the investor and the broker.
No interest is paid directly on this borrowed amount, but if the investor does not close his or her position before the delivery date , it will have to be rolled over , and interest may be charged depending on the investor's position long or short and the short-term interest rates of the underlying currencies.
When this occurs, the broker will usually instruct the investor to either deposit more money into the account or to close out the position to limit the risk to both parties. Dictionary Term Of The Day.
Broker Reviews Find the best broker for your trading or investing needs See Reviews. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the most influential advisors and their contributions to critical conversations on finance. Become a day trader. How does margin trading in the forex market work? By Kesavan Balasubramaniam Share.
Global currencies are traded on the forex market. Here's how to tap in. Understand the implications of a margin call and what an investor's options are when the stock he purchased on margin falls Learn how brokers have the sole discretion to determine which customers can open margin accounts, and understand the rules A margin account is an account offered by brokerages that allows investors to borrow money to buy securities.
Compare and contrast margin and cash accounts. Margin accounts offer short-term loans, leverage on existing portfolios, and Understand how maintenance margin calls work, and learn about how margin requirements are different for trading stock versus When an investor buys on margin, he or she pays a portion of the stock price — called the margin -- and borrows the rest from a stockbroker. The purchased stocks then serve as collateral for Find out what margin is, how margin calls work, the advantages of leverage and why using margin can be risky.
Before entering this market, you should define what you need from your broker and from your strategy. Discover the best ways to find a broker who will help you succeed in the forex market. While the forex market is slowly becoming more regulated, there are many unscrupulous brokers who should not be in business. Margin loans, futures and ETF options can all mean better returns, but which one should you pick? A broker's demand on an investor using margin to deposit additional Borrowed money that is used to purchase securities.
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