A margin refers to the amount of money required to open a leveraged position, representing a fraction of the full value of the trade.

What is a margin?

A margin is the amount of money that a trader needs to put up in order to open a position. It is essentially a deposit that acts as collateral to cover any potential losses the trader may incur. The margin requirement is typically expressed as a percentage, such as 1% or 2%, and represents the minimum amount of equity that must be maintained in the trading account.

Margin trading allows traders to control a larger position size with a relatively small amount of capital, which can amplify both potential profits and losses. Margin requirements vary by broker and are subject to regulation to ensure the financial stability of the market.

Example of a margin 

A margin refers to the initial deposit of “good faith” that a trader puts up to open a position. It is often expressed as a percentage of the full amount of the position. For example, if the required margin is 2%, this means that the trader is required to deposit $2,000 to open a position of $100,000.

This 2% is known as the margin requirement. The leverage provided by the broker allows the trader to control a larger position with a smaller amount of capital.

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