Base 8: Leverage and Margin
Leverage allows you to trade a lot with little money.
Forex has the distinction of having the highest levers in the world.
Much higher than those of stocks and futures.
A leverage of 30 multiplies your buying / selling power by 30.
With only $ 1000 you trade as if you had $ 30,000.
You get a potential to make 30 times the gains / losses.
Depending on the broker, the leverage varies between 30x and up to 800x.
Margin is the security deposit required to maintain a position.
This amount as a guarantee is temporarily deducted from your capital.
Without leverage, a $ 1000 position requires a $ 1000 security deposit.
Thanks to the lever, the required deposit is as many times smaller.
Here is a table giving the example with a lot of $ 1000, so 0.01:
The capital is the balance of your account excluding open positions.
As long as they are not cashed, they do not change your capital.
The equity is the current value of your account, including open positions.
Equity varies constantly depending on the value of open positions.
Equity is also reduced by the amount of margin used.
The available margin is what is left to open other positions.
The available margin must remain positive to avoid a margin call.
Margin varies constantly depending on the value of open positions.
The margin call occurs when the available margin falls to zero.
The margin call is initiated by the broker to avoid a negative balance.
The margin call is to close your positions. You cash the loss.
Some brokers close one position at a time to raise the margin.
Other brokers close all your positions at the same time.