A middleman whose job is to execute buys and sells in the market for their clients (traders).They receive a commission/fee for matching buyers and sellers against each other.
An increase to trade with a value far greater than the capital a trader has in their account. If your leverage is 1:50, that means if you have $1000 in your account, you’ll be able to trade as if you had $50,000 in your account ($1000 x $50,000). With greater leverage comes bigger gains AND bigger losses.
When a trade is placed your broker will set aside an amount needed to keep the trade open: this is called a margin. The difference between your equity and margin will be your free margin. If your trades happen to go below your free margin, you will receive a margin call, and can be stopped out of your positions. The balance in your account will be the amount of money set aside by your broker (margin).
A notification used to tell a trader that there is not enough funds provided to keep their positions open. You will also get an alert by the broker telling you to add more capital to the account to bring it back to good standing.
A running trade that is still active and has yet to be closed.
BeginnerEarly Stages for Beginners8 Topics
Forex Terminology11 Topics
- Major and Minor Currency Pairs
- Basic Forex Terminology
- Pips & Ticks
- The Broker & The Spread
- What is a Lot?
- Stop Loss & Take Profit
- Margin & Leverage
- Retracement & Reversal
- When Can I Trade Forex? Sessions - Market Open and Close
- 3 Types of Analysis (Technical, Fundamental, Sentiment)
- 3 Ways a Market Can Go (Up, Down, Sideways)
Margin & Leverage2 Topics
IntermediateIdentifying Scams2 Topics
Brokers for Beginners5 Topics
Technical Analysis13 Topics
- Types of Charts
- Understanding Japanese Candlesticks
- Candlestick Patterns For Beginners
- Single, Double & Triple Candlestick Patterns
- Support and Resistance
- Confluences w/ Candlesticks & Support & Resistance
- Counter Trend Trading/ Counter Trend Lines
- Moving Average
- Top-Down Analysis
- Consolidation Trading (Breakout, Retest, Continuation)
AdvancedUsing Indicators6 Topics
Technical Analysis (Part 2)8 Topics
Market Structure5 Topics
Fundamental Analysis9 Topics
CompletionRisk Management for Beginners8 Topics
Psychology for Beginners7 Topics
Personal Psychology Questions2 Topics
Margin and Leverage
Margin essentially prevents your account from going into the negatives. It’s basically your broker’s way of insuring you in case you decide to blow your entire account off one trade to make sure your account doesn’t go to NEGATIVE -$50 meaning you owe -$50 to the broker. In most all cases, if you opened a trade without a stop loss and just let it run against you, even if it blows your account, it won’t take your account from a $2000 account to a -$10,000 account where you would owe the broker -$10,000. Even without a stop loss, your broker will close out the trade because you’re losing too much money. This is called: Margin Call. Our entire next section is dedicated to Margin & Leverage. But back to margin:
Your broker will put a certain amount of money or percentage (varies) to the side to essentially cover any future losses. This money that’s put to the side (deposit) will be decided on by your broker.
Leverage is the complete opposite, and most new traders love it. A lot of traders wonder how they’re able to trade with only $100, $500, or even $1000. The answer is LEVERAGE! Think of your broker as a bank, who essentially gives you $50,000 to buy currencies. All the bank asks from you is that you give $500 as a sort of good faith deposit. This is how LEVERAGE works; it’s the ability to control large amounts of money with a relatively small capital.
NOTE: You don’t PHYSICALLY give your broker $500. It’s shown in your account. If they see you have $500 in your account and you choose a leverage of 1:100 ($500 x 100 = $50,000), they will allow you to open positions worth $50,000. We will discuss this more in the next section.