For people relatively new to the world of forex binary options, the term margin can simply be understood as the minimum threshold of balance that must be present in the user’s account so that they can uphold a position with much greater net worth in forex market. For your understanding, usual funds of around $1,000 will be required for a position of about $100,000 which is incidentally 1/100th of the funded amount.
During your time as a forex trader you may come across the term “margin” several times and it is quite easy for to keep track of what is really meant by it (even if you are just an amateur trader). Understanding margin can really help you in your trading, so you should give consideration to margin and other terms related to margin.
Let us look at some of the most important concepts related to margin in forex trading:
Margin Required: Margin required generally refers to the funds required to be offered up to a certain broker which precedes the opening of a position. You will have to have this amount in your account if you want to trade in forex market.
Margin Account: The concept behind this is quite simple. Margin account allows an investor the option to borrow money from a forex broker. This is basically a short term loan whose amount coincides with the amount of leverage the client is going for. An investor should ensure that this type of loan is actually affordable for him in the trading business.
Used Margin: Used margin is the amount of money that is kept in reserve by any corresponding broker. It acts as a sort of insurance so that you can uphold your position of choice at any point in time during the trading in forex options. Used margin is the amount of money that can only be retrieved in two cases, that is, either you vacate the position or receive a margin call.
Usable Margin: Usable margin refers to the amount of money that can be used to open up new positions or keep a check on the losses of the present setups. This helps to cover up the losses until and unless your reserve hits the zero mark in which case you can expect to receive the margin call. This is more of a profit or loss scenario such that new positions will add to your margin while losses will deduct the same amount from your account.
Margin Call: In the unfortunate event that your usable margin is not enough to cover up your losses, some or in the worst case all of your positions will be vacated. The broker has the authority to make a margin call and they can do this at the market price.
Good understanding of margin and other concepts related to it can help you understand the forex trading scenario in a better way. Forex trading can become simpler for you if you have a clear picture of how margin impacts your financial dealings.