Lot Size Inward Trading Forex. Leverage Together With Risk. Margin.
Lots - quantity you lot desire to trade
1.0 Lots = 100,000 units of currency ( 1 Lots )
0.1 Lots = 10,000 units of currency ( 1 mini-lots )
0.01 Lots = 1,000 units of currency ( 1 micro-lots )
All alongside upward to every bit much every bit 1000:1 existence available (although non inwards the U.S. where the maximum is at 1 time 50:1 after a ruling past times the CFTC).
Leverage
In finance, leverage (sometimes referred to every bit gearing inwards the United Kingdom) is a full general term for whatever technique to multiply gains together with losses. Common ways to achieve leverage are borrowing money, buying fixed assets together with using derivatives.
Leverage together with risk
The virtually obvious adventure of leverage is that it multiplies losses. Influenza A virus subtype H5N1 enterprise that borrows also much coin powerfulness aspect upward bankruptcy during a trace concern downturn, spell a less-levered enterprise powerfulness survive. An investor who buys a stock on 50% margin volition lose 40% of his coin if the stock declines 20%.
There is an of import implicit supposition inwards that account, however, which is that the underlying levered property is the same every bit the unlevered one. If a fellowship borrows coin to modernize, or add together to its production line, or expand internationally, the additional diversification powerfulness to a greater extent than than outset the additional adventure from leverage. Or if an investor uses a fraction of his or her portfolio to margin stock index futures together with puts the residue inwards a coin marketplace fund, he or she powerfulness convey the same volatility together with expected render every bit an investor inwards an unlevered equity index fund, alongside a express downside. So spell adding leverage to a given property ever adds risk, it is non the illustration that a levered fellowship or investment is ever riskier than an unlevered one. In fact, many highly-levered hedge funds convey less render volatility than unlevered bond funds, together with populace utilities alongside lots of debt are ordinarily less risky stocks than unlevered applied scientific discipline companies.
source: http://en.wikipedia.org/wiki/Leverage_%28forex%29#cite_note-autogenerated1995-0
Margin
In finance, a margin is collateral that the holder of a fiscal musical instrument has to deposit to encompass around or all of the credit adventure of their counterparty (most oftentimes their broker or an exchange).
The collateral tin sack live inwards the carve upward of cash or securities, together with it is deposited inwards a margin account. On U.S. futures exchanges, "margin" was formerly called surgery bond. Most of the exchanges today piece of occupation SPAN (Standard Portfolio Analysis of Risk) methodology for calculation of margin inwards 'Options' together with 'Futures'. SPAN was developed past times the Chicago Mercantile Exchange inwards 1988.
Types of margin requirements
The electrical current liquidating margin is the value of a securities seat if the seat were liquidated now. In other words, if the holder has a brusk position, this is the coin needed to purchase back; if they are long, it is the coin they tin sack heighten past times selling it.
The variation margin or maintenance margin is non collateral, simply a daily payment of profits together with losses. Futures are marked-to-market every day, thus the electrical current toll is compared to the previous day's price. The net turn a profit or loss on the twenty-four hours of a seat is together with thus paid to or debited from the holder past times the futures exchange. This is possible, because the telephone commutation is the key counterparty to all contracts, together with the release of long contracts equals the release of brusk contracts. Certain other telephone commutation traded derivatives, such every bit options on futures contracts, are marked-to-market inwards the same way.
The seller of an selection has the obligation to deliver the underlying of the selection if it is exercised. To ensure they tin sack fulfill this obligation, they convey to deposit collateral. This premium margin is equal to the premium that they would necessitate to pay to purchase dorsum the selection together with unopen out their position.
Additional margin is intended to encompass a potential autumn inwards the value of the seat on the next trading day. This is calculated every bit the potential loss inwards a worst-case scenario.
SMA together with Portfolio margin offering alternative rules for U.S. together with NYSE regulatory margin requirements.
Enhanced leverage is a strategy offered past times around brokers that provides 4:1 or 6:1+ leverage. This requires maintaining ii sets of accounts, long together with short.
Example 1
An investor sells a telephone band option, where the buyer has the correct to purchase 100 shares inwards Universal Widgets S.A. at 90¢. He receives an selection premium of 14¢. The value of the selection is 14¢, thus this is the premium margin. The telephone commutation has calculated, using historical prices, that the selection value won't become inwards a higher house 17¢ the adjacent day, alongside 99% certainty. Therefore, the additional margin requirement is laid at 3¢, together with the investor has to post service at to the lowest degree 14¢ + 3¢ = 17¢ inwards his margin trace concern human relationship every bit collateral.
Example 2
Futures contracts on sweetness unsmooth petroleum closed the twenty-four hours at $65. The telephone commutation sets the additional margin requirement at $2, which the holder of a long seat pays every bit collateral inwards her margin account. Influenza A virus subtype H5N1 twenty-four hours later, the futures unopen at $66. The telephone commutation at 1 time pays the net turn a profit of $1 inwards the mark-to-market to the holder. The margin trace concern human relationship soundless holds entirely the $2.
Example 3
An investor is long fifty shares inwards Universal Widgets Ltd, trading at 120 pence (£1.20) each. The broker sets an additional margin requirement of 20 pence per share, thus £10 for the full position. The electrical current liquidating margin is currently £60 inwards favour of the investor. The minimum margin requirement is at 1 time -£60 + £10 = -£50. In other words, the investor tin sack run a deficit of £50 inwards his margin trace concern human relationship together with soundless fulfil his margin obligations. This is the same every bit maxim he tin sack borrow upward to £50 from the broker.
source: http://en.wikipedia.org/wiki/Margin_trading
Best Regards,
^^_Lord_Ice_^^
1.0 Lots = 100,000 units of currency ( 1 Lots )
0.1 Lots = 10,000 units of currency ( 1 mini-lots )
0.01 Lots = 1,000 units of currency ( 1 micro-lots )
All alongside upward to every bit much every bit 1000:1 existence available (although non inwards the U.S. where the maximum is at 1 time 50:1 after a ruling past times the CFTC).
Leverage
In finance, leverage (sometimes referred to every bit gearing inwards the United Kingdom) is a full general term for whatever technique to multiply gains together with losses. Common ways to achieve leverage are borrowing money, buying fixed assets together with using derivatives.
Leverage together with risk
The virtually obvious adventure of leverage is that it multiplies losses. Influenza A virus subtype H5N1 enterprise that borrows also much coin powerfulness aspect upward bankruptcy during a trace concern downturn, spell a less-levered enterprise powerfulness survive. An investor who buys a stock on 50% margin volition lose 40% of his coin if the stock declines 20%.
There is an of import implicit supposition inwards that account, however, which is that the underlying levered property is the same every bit the unlevered one. If a fellowship borrows coin to modernize, or add together to its production line, or expand internationally, the additional diversification powerfulness to a greater extent than than outset the additional adventure from leverage. Or if an investor uses a fraction of his or her portfolio to margin stock index futures together with puts the residue inwards a coin marketplace fund, he or she powerfulness convey the same volatility together with expected render every bit an investor inwards an unlevered equity index fund, alongside a express downside. So spell adding leverage to a given property ever adds risk, it is non the illustration that a levered fellowship or investment is ever riskier than an unlevered one. In fact, many highly-levered hedge funds convey less render volatility than unlevered bond funds, together with populace utilities alongside lots of debt are ordinarily less risky stocks than unlevered applied scientific discipline companies.
source: http://en.wikipedia.org/wiki/Leverage_%28forex%29#cite_note-autogenerated1995-0
Margin
In finance, a margin is collateral that the holder of a fiscal musical instrument has to deposit to encompass around or all of the credit adventure of their counterparty (most oftentimes their broker or an exchange).
This adventure tin sack arise if the holder has done whatever of the following:
- borrowed cash from the counterparty to purchase fiscal instruments,
- sold fiscal instruments short, or
- entered into a derivative contract.
The collateral tin sack live inwards the carve upward of cash or securities, together with it is deposited inwards a margin account. On U.S. futures exchanges, "margin" was formerly called surgery bond. Most of the exchanges today piece of occupation SPAN (Standard Portfolio Analysis of Risk) methodology for calculation of margin inwards 'Options' together with 'Futures'. SPAN was developed past times the Chicago Mercantile Exchange inwards 1988.
Types of margin requirements
The electrical current liquidating margin is the value of a securities seat if the seat were liquidated now. In other words, if the holder has a brusk position, this is the coin needed to purchase back; if they are long, it is the coin they tin sack heighten past times selling it.
The variation margin or maintenance margin is non collateral, simply a daily payment of profits together with losses. Futures are marked-to-market every day, thus the electrical current toll is compared to the previous day's price. The net turn a profit or loss on the twenty-four hours of a seat is together with thus paid to or debited from the holder past times the futures exchange. This is possible, because the telephone commutation is the key counterparty to all contracts, together with the release of long contracts equals the release of brusk contracts. Certain other telephone commutation traded derivatives, such every bit options on futures contracts, are marked-to-market inwards the same way.
The seller of an selection has the obligation to deliver the underlying of the selection if it is exercised. To ensure they tin sack fulfill this obligation, they convey to deposit collateral. This premium margin is equal to the premium that they would necessitate to pay to purchase dorsum the selection together with unopen out their position.
Additional margin is intended to encompass a potential autumn inwards the value of the seat on the next trading day. This is calculated every bit the potential loss inwards a worst-case scenario.
SMA together with Portfolio margin offering alternative rules for U.S. together with NYSE regulatory margin requirements.
Enhanced leverage is a strategy offered past times around brokers that provides 4:1 or 6:1+ leverage. This requires maintaining ii sets of accounts, long together with short.
Example 1
An investor sells a telephone band option, where the buyer has the correct to purchase 100 shares inwards Universal Widgets S.A. at 90¢. He receives an selection premium of 14¢. The value of the selection is 14¢, thus this is the premium margin. The telephone commutation has calculated, using historical prices, that the selection value won't become inwards a higher house 17¢ the adjacent day, alongside 99% certainty. Therefore, the additional margin requirement is laid at 3¢, together with the investor has to post service at to the lowest degree 14¢ + 3¢ = 17¢ inwards his margin trace concern human relationship every bit collateral.
Example 2
Futures contracts on sweetness unsmooth petroleum closed the twenty-four hours at $65. The telephone commutation sets the additional margin requirement at $2, which the holder of a long seat pays every bit collateral inwards her margin account. Influenza A virus subtype H5N1 twenty-four hours later, the futures unopen at $66. The telephone commutation at 1 time pays the net turn a profit of $1 inwards the mark-to-market to the holder. The margin trace concern human relationship soundless holds entirely the $2.
Example 3
An investor is long fifty shares inwards Universal Widgets Ltd, trading at 120 pence (£1.20) each. The broker sets an additional margin requirement of 20 pence per share, thus £10 for the full position. The electrical current liquidating margin is currently £60 inwards favour of the investor. The minimum margin requirement is at 1 time -£60 + £10 = -£50. In other words, the investor tin sack run a deficit of £50 inwards his margin trace concern human relationship together with soundless fulfil his margin obligations. This is the same every bit maxim he tin sack borrow upward to £50 from the broker.
source: http://en.wikipedia.org/wiki/Margin_trading
Best Regards,
^^_Lord_Ice_^^
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