Leverage and Margin question

JacobD

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Hi there, :)
Could someone please explain to me how this works; "If a person funds an account for US$4000, and the leverage is 1:100 i.e, 1%. When the free margin for open positions slips to less 50% of 1%, the highest open position will be stopped out until the free increases to 50% of 1%." Could someone explain to me in layman terms how that works please and how much margin would be needed with an open trade?


Also, "say I fund an ac for US$4000, for 1:300% leverage i.e.0.33%, is that right? When the free margin for open positions slips to less 100% of 0.33%, the highest open position will be stopped out until the free margin increases to 100% of 0.33%.." Could someone please tell me how that works?

Thank you.
 
let me explain both the scenarios-

in the first case if you have leverage of 100X and balance of $4000 and you opened 10 positions of 0.1 lot each in USD JPY, resulting in open position of 1 lot, the margin used is $1000 & for each position - $100.

now if you positions start occuring the losses and your equity starts falling

if your equity drops below 50% of used margin, in this case 50% of used nargin would be $500 that means if your equity drops below $500 (and losses exceeding $3500, system would close out the first open position of 0.1 lot. now you are left with 9 trades with lot size 0.1 each. total margin used $900

now the margin call would trigger at $450 (50% of 900)that means if your equity drops below $450 the system would close second opend position and you would left with 8 and this process would keep on happening till the time all your positions get closed or you hit profit targets
 
Check your brokers TOS carefully. Some will close 1 position at a time. Others will close it all at once. If you can't figure it out, email their support various scenarios. Save their answers in case they do something
"unusual" to your positions.
 
Some brokers offer 1:1000 on micro accounts and 1:400 on regular trading accounts but there's also some crazy offers like 1:3000 which seems unreal in my opinion. New traders being unaware of the market conditions should keep the leverages low in start as using high leverage can claim higher damages too.
Some brokers offer 1:1000 on micro accounts and 1:400 on regular trading accounts but there's also some crazy offers like 1:3000 which seems unreal in my opinion. New traders being unaware of the market conditions should keep the leverages low in start as using high leverage can claim higher damages too.
 
If the broker is the counterparty, they can offer insane leverage. But, imagine what happens if their clients a heavily net long on one pair and that pair goes into a strong uptrend. There might not be enough money collected from losing traders to pay the winning traders.
 
I agree and maybe in such stance these counter party brokers might tends to close traders active positions or may use some other tactics too.. However, I believe that an honest broker may not become a part of such decisive processes.
 
I agree and maybe in such stance these counter party brokers might tends to close traders active positions or may use some other tactics too.. However, I believe that an honest broker may not become a part of such decisive processes.

If I may, forget about honest vs dishonest. Instead think in terms of risk management (what does the broker need to do to manage client risk if the broker is the counterparty to all client trades always? or a fraction of the time?) and what makes business sense for the broker (in other words, imagine you are the broker and it is your business, then what makes sense for you to do in order to remain in business and make a profit too?).

Now, go find the information that answer both questions for each broker you are evaluating.

The ones with sound risk management processes in place and non-abusive business practices are the brokers you want to do business with. This in turn brings up the question: How transparent is the broker?

On one end of the scale (the good end, that is ;) ): a very transparent broker will make it super easy to answer these questions by not only providing you with the required information, but also not showing reluctance in providing it.

On the other end of the scale where cheats and lowlives lurk in the dark of shadows (so bad ;) ) : either no information will be forthcoming, or at best, a little info will be given, but only reluctantly and with great difficulty.

Then, based on this, choose your broker.

EX: ok let's say a trader from Surinam. She might like fixed spreads, 'low' leverage (50:1), knowing the broker will always be there with its own liquidity to fill her order no matter what. In this case, OANDA would be a good choice for her.

But let's Sammy 'Crackhead' Fong from Hong Kong likes it fast and wild, then OANDA is not for him. No, Sammy needs speed, tight spreads, insane leverage, quick-in quick-out no questions asked! Well, then in that case, he would choose an outfit like XM (leverage: 888:1!!!) or go full tilt and go for 3000:1 leverage at FxGlory!!! Oh yes, glorious indeed must be the losses of FxGlory's clients.

And then you have Ozzie Kog () who likes it slow and easy. For him, variable spreads (still tight), no BS execution (still fast), 200:1 (because he is a risk taker, after all) is plenty enough as he knows he is in as real an environment as can be. So, LMAX or Darwinex will suffice, or INVAST because he's got the dough from all the marijuana sales. Let's say even AxiTrader will suffice since they are in his home country and if they bamboozle him, he knows where they live and will be able to bring the good times right to their door step.

Alright, enough with the metaphors. I trust you get the picture.
 
I don't know whether my answer can enlighten you or not. Let me try. Leverage is the effective amount or maximum amount of money that you can borrow from your broker against initial margin in your trading account with that broker. For getting this borrowing opportunity you must have to put some margin amount i.e. initial deposit with that broker. And leverage capacity signifies your highest borrowing capacity from the broker. An example can be used.

1:300 leverage means that if you deposit $1 in your trading account as initial deposit you can borrow highest $300 from your broker that is your borrowing capacity is 33.33% which is a moderate leverage ratio. For any micro investor who does not want to use his own large capital; he can use leverage to trade with the levered funds.
 
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