Understanding Margin and Leverage

Understanding Margin and Leverage

When it comes to understanding forex, there are a few main concepts that a beginner needs to master. First of all, currency pairs and the correlation of prices of two currencies in the pair. Once you have wrapped your mind around it, you’re halfway through! Another important concept of trading lies in understanding two terms: margin and leverage. While Harborx lets you trade without diving into complexities of forex terminology, it’s always good to understand some main concepts.

What is Margin?

When you open a trade in Harborx, you see a line: Margin required [certain amount]. To put it in simple terms, margin is the amount you need to have in your account to open a position. It is a collateral used to hold an open position. Margin required for a certain position depends on the amount of trade you’re trying to open. When you’re trying to open too many positions without having the required margin, you get what is called a ‘margin call’, in case of Harborx app it’s the warning that your trading power is falling before your positions get closed. The easiest way to counter margin requirements and avoid your positions to close is to increase your account balance.

Here, we can see that the margin required for opening a position is $12.90 – this is the amount you need to have in your account to open this trade.

What is Leverage?

Leverage is a tool that lets a trader increase their market exposure well above their original investment. For example, Harborx account leverage is 50:1. It means that your leverage of $12.90 lets you control a position that is 50 times bigger: $12.90 x 50 = $645.

Basically, leverage lets you do more with less. However, there is a downside: not only does leverage maximize your potential winnings, it also increases your losses. This is why regulators recommend to keep the leverage as 50:1 – exactly what we have in Harborx. If you come across a broker who offers great opportunities with leverage 1000:1 (or even more), this is a red flag, as you may end up risking everything. In case with Harborx, you get a good opportunity to control bigger positions, while keeping your losses in check, too. Great approach for fun and low-stress trading, right?

 

_____________________

Harborx Limited is regulated by Cyprus Securities and Exchange Commission under license number 230/14 in accordance with the Markets in Financial Instruments Directive of the European Union, and the Investment Services and Activities and Regulated Markets Law of Cyprus (Law 144 (1) / 2007). Harborx.com is owned and operated by Harborx Limited.
Risk warning: there is a high level of risk involved with trading forex, commodities, indices and other contract-for-differences. Past performance is not a reliable indicator of future results. You must be aware of the risks associated with trading directly or indirectly on margin. Please ensure that you fully understand the risks involved and do not invest with money you cannot afford to lose. Please seek independent advice if the risks involved seem unclear to you and refer to our full risk disclaimer.

Share

This blogpost is brought to you by Harborx.com. Check out our website to see how your trading experience can be simplified.

Leave a Reply

Your email address will not be published. Required fields are marked *