Forex Understanding Margin Trading
Trading Margins. In principle, forex trading with a margin system is an exchange
or trading currency with other currencies in a contract unit with a guarantee for the transaction (necessary margin). That is, this trade does not involve the physical currency, but only the value (will be discussed in more detail later). Thus, investors do not need to deposit capital equal to the physical value of the transaction.
Example:
Market price GBP 1 = USD1.8850
Buy: USD 10,000 (1 lot)
Transaction value: USD 18,850 (USD 10,000 x GPB 1,8850)
Initial margin: 1%
Funding required: USD 100 (1%x USD 10,000)
When the market price of GPB 1 = USD 1.8950
Sell: USD10,000 (1 lot)
Earned yield: USD 18,950 (USD 10,000 x GPB 1,8950)
Profit: USD 100 (USD 18,950 - USD 18,850)
Rate of Return: 100% (USD 100/USD 100 x 100%)
Forex Understanding Margin Trading
Note, to transact 1 lot, you only need to fund USD 100, (not USD 10,000) with a contract value of USD 10,000 or USD 1,000 with a contract value of 100,000 as a guarantee of the transaction. With this margin trading system, investors can get a much greater rate of return. In our case above it reaches 100%. Meanwhile, if the trade is done with a physical system, this rate of return is only 10% (USD 100/USD 10,000 x 100%)
MARGIN TRADING We have used the word margin at length in forex trading. What exactly is meant by margin-Complete forex trading with a margin system?
Definition and Understanding of Margin Trading
In the world of forex margin trading is a very important part and must be understood by every investor. It can be considered that the margin is life blood. In the stock market, margin is a facility provided by stock brokerage companies to investors. It is said to be a facility, because stock brokerage companies provide some kind of loan to investors. However, these loans do not have to be repaid on a scheduled basis, like loans from banks. The new investor returns if he manages to sell the shares he bought at a price higher than the purchase price. Or conversely, managed to liquidate its selling position (short selling), by buying at a price lower than the selling price. In return for the facilities provided by the futures brokerage company, investors must pay loan interest and fees.
In the forex market, margin is not a facility provided by futures brokerage firms. This means that futures brokerage firms do not need to "build" the investors' need for funds that exceed the funds they have to invest. This different concept is due to forex trading or generally the futures market does not require non-delivery of the subject matter, such as stocks. Margin in forex trading is a security deposit deposited by investors to futures brokerage companies, so that investors can make transactions through the futures brokerage company.
Market price GBP 1 = USD 1.8850
Buy: USD 10,000 (1 lot)
Transaction value : Rp. USD 18,850 (USD 10,000 x GBP 1,8850)
Initial margin : 1%
Funding required : USD 100 (1 % x USD 10,000)
When market price GBP 1 = USD1.8950
Sell: USD 10,000 (1 lot)
Earned yield: USD 18,950 (USD 10,000 x GBP 1,8950)
Profit : USD 100 (USD 18,950 - USD 18,850)
Rate of Return: 100% (USD 100/USD 100 x 100%)
Here we see an investor making an open position by buying 1 lot of GBP (USD 10,000) where the price of GBP is USD 1.8850. Thus, the required funds are USD 18,850, or investors must deposit such a large amount of funds as a transaction capital of 1 lot of GBP. However, because trading is carried out on a margin system, and the set margin is 1% of the contract value, investors only need to deposit USD 100 capital (1% x USD 10,000). Then where did the USD 9,900 funds come from? Because in futures trading there is no delivery, there is no need for a shortage of funds. So to buy GBP worth USD 10,000, investors only need to provide USD 100 funds. While in stock trading, to be able to trade shares worth USD 100,000, investors must deposit a margin of USD 50,000. The shortfall of USD 50,000 will be borrowed from the stock brokerage firm.
In Law no. 32 of 1997 concerning Commodity Futures Trading, margin is defined as the amount of money or securities that customers must place with futures brokers, futures brokers to futures clearing members, or futures clearing members to futures clearing institutions, to ensure the implementation of futures contract transactions. Margin is deposited for each customer's orders placed with futures brokers. This is intended as a guarantee for the implementation of futures contract transactions made based on the above mandate.