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  • Welcome to the Investors Trading Academy talking glossary of financial terms and events.

  • Our word of the day is "MARGIN" Margin is a deposit that is used as collateral

  • when entering a financial transaction. The trader makes this deposit in 'good faith'

  • to purchase or sell a contract of a currency or commodity. It is the same thing as leverage

  • but the only difference is that margin is characterized in percentage and leverage is

  • shown as a ratio. Basically you are borrowing money to purchase

  • securities, similarly to a down payment on a car, but you are not taking physical delivery

  • so the asset is held as collateral. Your down payment or equity is a percentage of the value

  • of the security held in a margin account. When an investor uses a margin account, he

  • or she is essentially borrowing to increase the possible return on investment. Most often,

  • investors use margin accounts when they want to invest in equities by using the leverage

  • of borrowed money to control a larger position than the amount they'd otherwise be able to

  • control with their own invested capital. These margin accounts are operated by the investor's

  • broker and are settled daily in cash. But margin accounts are not limited to equities

  • - they are also used by currency traders in the forex market.

  • In other words, margin is a courtesy deposit needed to access a leveraging facility in

  • forex. Your deposit is also known as an initial margin or initial deposit. Say, you have $100

  • in your account and your leverage is 100:1. This means that you can trade up to $100,000

  • worth of currencies. Your account balance will be 'earmarked' and

  • locked for every transaction that you make leading up to the $100,000 mark. So if you

  • hold a $10,000 open position, $100 of your account balance is tied up as a security to

  • your broker. Buying with borrowed money can be extremely

  • risky because both gains and losses are amplified. That is, while the potential for greater profit

  • exists, this comes at a hefty price - the potential for greater losses. Margin also

  • subjects the investor to a number of unique risks such as interest payments for use of

  • the borrowed money.

Welcome to the Investors Trading Academy talking glossary of financial terms and events.

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B1 margin deposit leverage account investor borrowed

What is Margin?

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    richardwang posted on 2015/08/24
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