When you start trading, different concepts catch your attention. Margin is one of the beginning concepts of Forex trade. Novice traders try to learn the trading strategies from the blogs of professional traders. Sometimes they tend to follow them blindly or create their own strategy. But they fail to get any guidance about the basics of this paying profession. If you want to have a pre-trading training then you are on the right place, my friend. Let’s explore some basics of Forex trading.
Novice traders and Margin, Transaction cost or Fee?
The concept of ‘Margin’ often confuses the Novice traders. Some believe it to be a ‘Trading Fee’. While some treat it as a transaction cost. But actually it is none of the above mentioned. When you start some business, you have to invest some money. Same is the case with Forex trading. The initial amount of money that you invest for start trading is called Margin.
You need to have this certain small amount of money in your trading account to try your luck in trading. For example, if you want to trade of $10000 in EUR/USD, then you don’t need to set aside the total amount rather you just need some certain percentage of the total amount, this is what called ‘Margin Requirement’ in Forex trade. However this percentage varies and depends on your trade broker.
You can consider it as the deposit amount. ‘Collateral’ is another word that can help you to understand it. Thus it is just a certain amount of money that broker puts in reserve so that you can maintain your trade position. It also helps you to manage in case of a loss in that trade. It is therefore set aside until the completion of that particular trade. After the closure of that trade, your margin will again appear in your trading account. You are free to use it in the next trade.