Margin and leverage are concepts that allow traders to open large positions with small deposits. What is margin? Margin trading refers to using borrowed funds from a broker to purchase a financial asset or assets in a larger volume. Traders use margin to buy more stock than they would normally be able to (or afford to do).
Does margin trading work?
In order for margin trading to work there has to be leverage, and for leverage trading to work, there has to be margin. Let me explain further. When you trade any financial asset with leverage you need margin capital to access leverage.
What is the margin requirement?
The Margin Requirement is 0.01 or 1%. As you can see, leverage has an inverse relationship to margin. “Leverage” and “margin” refer to the same concept, just from a slightly different angle. When a trader opens a position, they are required to put up a fraction of that position’s value “in good faith”.
What is free margin?
Think of margin as the collateral required to open a leveraged position. ‘Free margin’ refers to the amount of money in your account which can be used for opening additional leveraged positions. In effect, free margin = funds in your trading account – funds already acting as collateral for current leveraged positions.
