What is Margin in Indices Trading?
What is Margin in Indices Trading
The definition of Indices Trading Leverage is having the ability to control a large amount of money using very little of your own money and borrowing the rest - this is what makes the stock indexes trading market to attract many investors.
We shall explain indices trading leverage first and then explain indices trading margin in this learn how to calculate stock indexes trading leverage and margin tutorial.
We shall us this example to explain what indices trading leverage is? If your indices broker gives you stock indices leverage of 100:1 (this is the best option to choose as the maximum for any account)
This means you borrow 100 dollars for every dollar you have in your stock indexes trading account.
To put in another way your indices broker gives you 100 dollars for every 1 dollar in your account. This is what is known as stock indexes trading leverage.
This means if you open an account with $1,000 and your stock indices leverage is 100:1, then your get $100 for every $1 you have, the total amount you will control is:
If for 1 dollar the indices broker gives you 100
Then if you have 1,000 you will get a total of:
$1,000 * 100 = 100,000 dollars
Now you control 100,000 dollars of Investment
Most new indices traders ask what stock indices leverage is best stock indices leverage for 1,000 dollars, or 2,000 dollars, or 5,000 dollars indices trading account? - The best stock indices leverage option to choose when opening a live stock indexes trading account is always 100:1 and not 400:1.
What is Margin?
This is the amount of money required by your indices broker so as to allow you to continue trading with the borrowed amount.
In other words the question what is margin in Indices Trading? can be explained as the money required to cover open stock indexes trades and is expressed in percentage. For 100:1, the amount you will control is 100,000 dollars as explained in the above example.
Now can you compare someone investing $1,000 with another one investing $100,000? Obviously Not. This is how it works, it takes you from that guy investing $1,000 to that one investing $100,000. Where does this extra money come from? You borrow from your indices broker in what is simply known as Indices Trading Leverage. This money that you borrow, you borrow it against the $1,000 dollar of your own money that you deposit with your stock indexes trading broker. If you were to explain what this indices trading leverage means - then it is the 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 Trading without this indices trading leverage it would not be as profitable as it is, in fact you can still choose not to use stock indexes trading leverage, using the 1:1 option but you would not make money it would take too long to make any profit.
Example of how to calculate stock indexes trading leverage and margin:
Margin required in this case is 1,000 dollars (your money) if it is expressed as a percent of 100,000 dollars which you control it is:
If leveraging = 100:1
1,000 / 100,000 * 100= 1%
Margin required = 1%
(1/100 *100= 1%)
"Trade Forex Trading - Please simplify because I am Beginner"
(Simplify - your capital is $1,000 after stock indices leverage you control $100,000 - $1,000 is what percent of $100,000 - it is 1%) that is your margin requirement for your stock indexes trading account.