Understanding MARGIN

When you trading on margin, you are able to increase your buying power.

Example:

At 100:1 leverage, every $1 you have in your account allows you to control $100 in buying power. If you have $2,000 cash in a margin account with 100:1 leverage, you could purchase up to $200,000 worth of currency.


Benefits (and Drawbacks) of Using Margin

With more buying power, you can increase your total return on investment with less cash outlay. However, keep in mind that trading on margin magnifies your profits AND your losses.


Managing a Margin Account

Trading on margin can be a profitable investment strategy, but it's important that you take the time to understand the risks.

• You should make sure you fully understand how your margin account works. Be sure to read the margin agreement between you and your brokerage. Talk to your account representative if you have any questions.

• The positions in your account could be partially or totally liquidated should the available margin in your account fall below a predetermined threshold.

• You may not receive a margin call before your positions are liquidated. This means, the brokerage will simply liquidate your position without even informing you that they are about to do so. Usually you will get a notice of some sort - a pop-up window or something. But your agreement with the brokerage generally permits them to close your positions without notifying you.

You should monitor your margin balance on a regular basis and utilize stop-loss orders on every open position to limit downside risk.