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Glossary
Margin
Definition
The amount of equity (collateral) required for an investment position, as a percentage of the current value.
When trading on margin (also called gearing or leveraging), you only need to deposit a fraction of the current value of the instrument you are investing in.
For example, if the commodity you are trading in requires a margin of 5%, this allows you to leverage (or gear) your investment 20 times. In other words, a deposit of USD 10,000 can hold a position of USD 200,000.
What is margin?
Margin in trading refers to borrowing money from a broker to purchase stock or other securities. It allows traders to buy more stock than they'd be able to with their own funds alone. Margin trading amplifies both potential gains and potential losses.
Why is margin important to consider when trading?
Margin trading is important as it can significantly increase an investor's purchasing power and potential returns. However, it also increases risk, as losses can exceed the initial investment. Understanding margin requirements and the risks involved is crucial for traders, especially in volatile markets.