In recent years, the urge to learn forex trading and become a forex trader has shot among young people. This is primarily because forex trading allows a lot of flexibility and the opportunity to earn a lot of money in a limited time.
However, as any experienced forex trader would tell you, forex trading requires a lot of financial knowledge and trading expertise. Forex trading terminology can also be quite complex for the uninitiated and can overwhelm you if you are a beginner.
Two of the most oft-used terms from the forex dictionary are margin and leverage. Let’s understand both these terms in depth and if they are different from each other.
What is the margin in forex trading?
Margin trading refers to the process of depositing money with a forex broker in good faith to open a trade and maintain your position for a currency pair. It is a part of your account balance as a customer that is set aside for the trade and does not refer to any cost or fee.
What are margin levels in forex?
Margin refers to your initial deposit as a trader that is held as collateral by your broker. Therefore, your margin level is calculated as per the amount left in the deposit to open further positions.
Thus, your margin level would be the equity in your trading account expressed as a percentage of your used margin.
What do you mean by margin calls in forex trading?
Your margin levels on your trading account are likely to fall if your trading positions are in negative territory. This means that the balance in your account would no longer cover your trading requirements.
In this case, if you are unable to top up your account with additional funds, your broker might liquidate some of your open trading positions to cover the costs. This situation is referred to as a margin call.
Is there any difference between leverage and margin in forex?
Wile margin and leverage are related, they aren’t the same thing. Margin is the deposit you need to make to start trading while leverage is the capital outlay that allows you to trade with larger position sizes.
How can you learn about other technical jargon associated with forex trading?
Margin and leverage are only two among a whole list of other complex terminologies associated with forex trading that you must know about before getting started. Here are some ways you can acquire this knowledge.
- Consume a fair share of market and trading news from reputed sources
- Communicate and talk with experienced forex traders
- Enrol in a forex trading course from a reputed trading institute
- Subscribe to renowned financial and trading journals
- Read industry publications such as white papers and research papers
- Practice forex trading simulations
Start looking out for appropriate forex trading courses from reputed trading schools today to become an accomplished trader within a short time.
