Understand Leverage & Margin Requirements when trading with T Markets
One of the most distinctive characteristics of trading forex and CFDs is applying leverage to get exposure to financial products across numerous asset classes. However, the greater exposure you have to the market, the greater your risks are. Therefore, leverage should be used responsibly and only by those who understand the principles of leveraging positions and the associated risks involved.
How Does Leverage Work?
The funds you deposit to your trading account is considered your margin. Leverage is a mechanism which allows you to open positions far greater than your initial margin.
For example, if you deposit 10,000 euros to a trading account, and have a maximum leverage of 1:30, your buying power can be potentially as much as €300,000. However, you absolutely should not allocate the entire value of your account to one trade. The higher your exposure is to the market; a small price movement will significantly impact profits or losses.
If for example, you open a long position for 10,000 EUR/USD, €333.33 of your margin will be used, leaving you with €9,666.67 free margin which may be used for other trades or maintained as part of a healthy risk management strategy.
Used Margin is the amount of margin used to maintain the open CFD position; it’s a static number. However, Free Margin is a dynamic number which adjusts according to unrealised profit and loss. Should the price fall by 300 Pips, the position experience drawdown of $300 (€245.6), which is an unrealised loss, then Free Margin will fall to €9,254.4, supposing the EUR/USD exchange rate 1.22150.
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* Risk Warning: Trading in forex and CFDs could lead to a loss of your invested capital.
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