Margin trading.

Nowadays, trading on the forex market is possible with virtually any starting capital, but a trader's own funds aren't always sufficient to generate significant profits. Margin trading is used to increase the volume of trades and, consequently, profits.

Margin trading is trading on the exchange using leverage, which is provided free of charge to broker clients and allows for significant increases in transaction amounts.

The leverage size is chosen by the trader when opening a new account, ranging from 1:1 (trading only with own capital) to 1:2000 (the maximum size depends on the trading conditions of a specific broker).

Features of margin trading.

The essence of margin trading is easiest to understand using a specific example of stock trading. For example, suppose you have $100 at your disposal, and by opening a trade of a certain size, you managed to make a profit of $10. If you had used a leverage of 1:10, your profit could have been 10 times greater, or the full $100.

Margin trading is possible thanks to leverage , the second digit of which characterizes the multiplication of funds available for trading.
 
For example, a figure of 1:50 indicates that the trader is provided with 50% leverage, while the first digit equals the trader's personal deposit. If the trader's deposit is 5,000 conventional units, and the leverage is 1:100, the amount available for investment is 5,000 x 100 = 500,000 conventional units.

Key points:

Advantages – the advantages of this type of trading are undeniable; its use allows for earning much more than the initial capital invested by the investor.

Disadvantages – the disproportionately large volume of transactions relative to the amount of equity significantly increases the risk of margin trading, which virtually eliminates the possibility of working on medium and long time frames.

Collateral – in margin trading, the investor's funds serve as collateral. If a trade goes bad, only the investor's funds, and never the broker's, suffer.

The recommended leverage is no more than 1:50; higher leverage is used only for short timeframes and the riskiest strategies.