What's Margin in Indices Trading?

What is Margin in Indices

The definition of Indices Leverage is having the ability to control a large amount of money using very little of your own money & borrowing the rest - this is what makes the market to attract many traders.

We shall explain leverage first and then explain margin in this learn how to calculate leverage & margin guide.

Example:

We shall use this trading example to explain what trading leverage is? If your broker gives you leverage ratio of 100:1 (this is the best option to select as the maximum for any account)

This means you borrow $100 for every 1 dollar you have in your account.

In other words your broker gives you $100 for each dollar in your trading account. This is what is referred to as leverage.

This means that if you open an account with $1,000 and your stock leverage ratio is 100:1, then you get $100 for every $1 dollar that you have in your trading account, the total sum which you will control is:

If for dollar the broker gives you 100

Then if you have 1,000 you will get a total of:

$1,000 * 100 = $100,000

Now you control 100,000 of Investment

Most new traders ask what leverage is best leverage for $1,000, or $2,000 dollars, or $5,000 account? - Best leverage option to choose when opening a live account is always 100:1 and not 400:1.

What's Indices Margin?

This is the amount of money required by your online index broker so that to allow you to continue trading with the amount borrowed.

In other words the question what is margin in Indices Trading? can be described as the money required to cover open stock trades & is expressed in percentage. For 100:1, the amount you'll control is $100,000 dollars as explained in the above examples.

Now can you compare a investor investing $1,000 with another one that is investing $100,000? Obviously Not. This is how it works: it takes you from that retail trader investing $1,000 to that investing $100,000. Where does this extra funds originate from? - You borrow it from your broker in what is simply referred to as Leverage. This money which you borrow, you borrow it against the $1,000 of your own money that you deposit with your online broker. If you were to explain what this trading leverage means - then it is ability to control a large amount of money using very little of your own money and borrowing the rest. Otherwise, if you were trade Indices without this leverage it wouldn't be as profitable as it is, in fact you can still choose not to use leverage, using the 1:1 trading leverage option but you would not make money and it would take too long to make any profit.

Example of how to calculate trading leverage and margin:

Margin required in this case is $1,000 dollars (your money) if it is expressed as a percentage of $100,000 dollars which you control it is:

If leverage ratio = 100:1

1,000 / 100,000 * 100= 1 %

Margin required = 1 %

(1/100 *100= 1%)

'Trade Forex Trading - Please simplify because I am Beginner Trader'

(Simplify - your capital is $1,000 after leverage you control $100,000 - $1,000 is what percent of $100,000 - it is 1%) that is your margin requirement for your account.