Margins are a hotly debated topic. Some traders argue that too much margin is very dangerous, however it all depends on trading style and the amount of trading experience one has. If you are going to trade on a margin account, it is important that you know what your broker's policies are on margin accounts, and that you fully understand and are comfortable with the risks involved. Be careful to avoid a Forex margin call.
If traders are positive on the prospects for the Yen, they would expect the number on the right to go down – i.e. the Yen would be getting stronger against the Dollar. Traders would be buying less Yen with a Dollar as the Yen got stronger. Similarly, if the Yen was expected to weaken, forex traders would expect the Yen number to go up, reflecting the fact that the dollar could buy more yen.
As we've already stated, trading on margin is trading on money borrowed from your broker. Each time you open a trade on margin, your broker automatically allocates the required margin from your existing funds in the trading account in order to back the margin trade. The precise amount of allocated funds depends on the leverage ratio used on your account.
GAIN Capital recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.
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Margin calls are mechanisms put in place by your Forex broker in order to keep your used margin secure. Remember, your used margin is allocated by your broker as the collateral for funds borrowed from your broker. A margin call happens when your free margin falls to zero, and all you have left in your trading account is your used, or required margin. When this happens, your broker will automatically close all open positions at current market rates.
As you may now come to understand, FX margins are one of the key aspects of Forex trading that must not be overlooked, as they can potentially lead to unpleasant outcomes. In order to avoid them, you should understand the theory concerning margins, margin levels and margin calls, and apply your trading experience to create a viable Forex strategy. Indeed a well developed approach will undoubtedly lead you to trading success in the end.
If you sell a security short, you must have sufficient equity in your account to cover any fees associated with borrowing the security. If you borrow the security through us, we will borrow the security on your behalf and your account must have sufficient collateral to cover the margin requirements of the short sale. To cover administrative fees and stock borrowing fees, we must post 102% of the value of the security borrowed as collateral with the lender. In instances in which the security shorted is hard to borrow, borrowing fees charged by the lender may be so high (greater than the interest earned) that the short seller must pay additional interest for the privilege of borrowing a security. Customers may view the indicative short stock interest rates for a specific stock through the Short Stock (SLB) Availability tool located in the Tools section of their Account Management page. For more information concerning shorting stocks and associated fees, visit our Stock Shorting page.
For traders who use robots, they should not fully depend on it to conduct all of their trading activity. Ultimately, trading demands a considerable amount of human research and observation. Additionally humans, and not trading software, can actually follow up with diverse economic conditions, and keep up with the news in the financial world. Forex robots, which are thought to be Forex robots that work, can solely find positive trends as well as trading signals, but occasionally their functionality is unfavourably affected by either jittery trends or false information.