What is Margin Trading?

Margin trading in the forex market is the process of making a good faith deposit with a broker in order to open and maintain positions in one or more currencies. Margin is not a cost or a fee, but it is a portion of the customer's account balance that is set aside in order trade.

It is a great authority given by forex, to traders to be able to trade on margin

Although some forex traders misunderstood the meaning of margin as a foreign concept. Lets take example like Bob.

Bob surely knows his chicken and iris potatoes well, but unfortunately he knows nothing about margin and leverage.

Whar are the Advantages of Margin trading to Forex Traders？

Margin trading enables traders to increase their exposure to the market. This means both profits and losses are amplified. Trading forex on margin enables traders to increase their position size and to trade on the positions higher than your capital.

Margin allows traders to open leveraged trading positions, giving them more exposure to the markets with a smaller initial capital outlay.

Remember, margin can be a double-edged sword as it magnifies both profits and losses, as these are based on the full value of the trade, not just the amount required to open it.

On the other way round, the meaning and benefits of margin is misunderstood by some traders most especially the new traders as they lacks the basics knowledge and doesn't know what is happening within the market. As results the market will go against them resulting losses in their portfolio. Like the example we give for Sam, who knows more about his other belongings but lacks the basics knowledge of margin. Based on his experience he is certain that the results of his trading will be profitable at the end so he rest assured of that.

But unfortunately to Bob, the market went otherwise where the he observed his trade was close automatically on his trading platform which resulted him a great lost. Leaving only few money in his account that cannot even allow him to open a new trade.

Bob becomes do disoriented with what happened and begins to even ask himself what Just happened to his trading account.

He then decided to contact his Broker for more clarification on what happened to his trading account. And the response he hot was that he has been sent Margin Call and experienced a Stop Out.

But this statement doesn't sound understandable to Bob, he do not even know what the broker is talking about. And so this makes Bob ignorant to the meaning of margin. This shows the reason why understanding the concept of margin and how it works becomes very important.

Even though most of the Traders lacks the knowledge of understanding How the margin works, Why is it important, how a Trader supposed to calculate it to get a better results in their trading.

As a Forex trader some popular question you may likely be ask about margin are, do you really understand what margin is abd its uses of margin in trading？ Do you know what is margin levels and free margin？, what do you understand by margin call and also stop out or margin closeout？. You can observe that there are numerous of margin jargon used in forex trading.

Thats why it is essential for you as a trader to understand thoroughly what all this margin jargon means even before you decide on which broker to use. Failure to do so, you may end up like Bob.

As worse things may happen yo your trading on the go like a margin call or a stop out and without you understand what just happened even to know why it happened

But if you seriously wants to understand how margin is used in forex trading, then you need to know how your margin trading account really works. Start with understand what the heck some very essential numbers you see on your trading platform really mean to you.

Those numbers on your trading platform or account will be called 'metrics '.

For instance, you can take a look at MetaTrader 4 or MT4 which is a known trading platform.

Those metrics shown above are all twisted together. Which means a change in one causes a change in another.

Therefore as a trader you need to understand the relationship between them before attempting to start any live trade on the account, so you shouldn't be like Bob.

Ensure you have a solid grasp and understanding of how your trading account actually works and how it uses margin also.

So where certain metrics fall below a certain value, then know that Bad things will happen. Therefore you need to know what these metrics are, as well as knowing what these Bad things are.

So let's Go in now right!

For a margin trading account the possible metrics displayed includes:

• Balance

• Used Margin

• Free Margin

• Unrealized P/L

• Equity

• Margin Level

A metric just means a measurement of something. Which means for each of those possible metrics mentioned above there is a certain things or value it measures In your Forex Trading accounts that has to do with margin.

For instance if we take the first one which is Balance; this margin measures how much funds you have in your trading platform. Is it enough for you to open a new trade, if not then you don't have enough margin to either open new trade or leave the existing. Although it depends on the platform, as each metric may have a slightly different names but all have the same functions and measure the same things.

Let's take a Look at another metric In MetaTrader 4.

Also another example of account metric from a different forex trading platform which is the sake as metric In MetaTrader 4 with different labels.

You can easily observe that in the above picture, used margin is not displayed but MetaTrader 4 has already mentioned it as just margin.

Also another example of account metric from a different forex trading platform which is the sake as metric In MetaTrader 4 with different labels.

Right now you do not need to worry About the different labels, as we will explain margin-related metric in a way that you will ne able to understand and know which metric is which regardless of the same label. Also we will let you understand and know the names that a specific metric is also known by. And at the end of this Margin Trading 101 course, you will be able to get a helpful “cheat sheet” for all these margin jargon.