Margin trading gives you the ability to enter into positions larger than your account balance. With a little bit of cash, you can open a much bigger trade in the forex market. And then with just a small change in price moving in your favor, you have the possibility of ending up with massively huge profits. Similarly, it makes losses greater than they would have been if the trade had been on a strict cash-only basis.
Leverage trading in forex is expressed in ratio (ex: 1:50) and allows traders to trade higher volumes without having to put up the required collateral in its entirety. In other words, leverage allows traders to magnify their positions, hitherto impossible with the original capital.
The initial margin required by each broker can vary, depending on the size of the trade. If an investor buys $100,000 worth of GBP/USD, they might be required to hold $1,000 in the account as margin. In other words, the margin requirement would be 1% or ($1,000 / $100,000).
The leverage ratio shows how much the trade size is magnified as a result of the margin held by the broker. Using the initial margin example above, the leverage ratio for the trade would equal 100:1 ($100,000 / $1,000). In other words, for a $1,000 deposit, an investor can trade $100,000 in a particular currency pair
With leverage of 100:1, you only need to have €1,000 in margin to take on a €100,000 position, with leverage of 500:1, the required margin is only €200. Note that some brokers offer leverage higher than 500:1, but most professional traders will not use leverage higher than 10:1, as it greatly increases the risk of loss, especially if you have a small account that cannot withstand unrealised losses.
LEVERAGE MAY BE DANGEROUS!
A common mistake beginning forex traders make is to use leverage without taking into account the risk in relation to the amount of money available in their trading account. Leverage can wipe out a trading account very quickly if it is not handled properly.
For example, if a trader has a $1,000 trading account and uses 100:1 leverage, each 1-pip movement is worth $10. If his stop is set 10 pips away from the entry point and it is hit, the trader loses $100, or 10% of his trading account. A reasonable trader generally will not risk more than 3% of his account on a position if he follows strict money management rules.
The Margin Level is the percentage (%) value based on the amount of Equity versus Used Margin. Margin Level allows you to know how much of your funds are available for new trades. The higher the Margin Level, the more Free Margin you have available to trade. The lower the Margin Level, the less Free Margin available to trade, which could result in something very bad…like a Margin Call or a Stop Out.
Stop Out is a minimal allowed level of margin at which the trading software will start to close Client's open positions one by one in order to prevent further losses that lead to negative balance (below 0 USD).
Margin percentage = Equity ÷ Margin consumed by order
Clients can view the Margin Percentage for each symbol clicking the details of this symbol. When, at the time of trading, your margin level for a certain instrument drops below the minimal allowed level of margin percentage, a Stop Out will occur and your position will be automatically closed.
* When the position is locked, Stop Out will take effect when your Equity ≤ 0
* You can check the margin percentage for various order types in details
* Eagles Markets will automatically detect whether the account meets the required conditions. If the above conditions are not satisfied, Eagles Markets will notify the Client asking to adjust leverage. If no action is taken, Eagles Markets will automatically adjust the leverage.
* In order to ensure that Clients fully understand the risks of leverage, Eagles Markets will ask each one to complete KYC-2 verification and reach the V2 level before they can apply for leverage higher than 300:1.
Use leverage to get profit in margin trading