What is margin trading? How to trade with a margin account

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To margin or not to margin? For some of you, it may seem obvious as trading with leverage is a common thing to do nowadays. Brokers like SimpleFX made it easier than trading stock or forex on a traditional currency account. 

With SimpleFX, you can do margin trading with your smartphone from everywhere, make a considerable profit, and withdraw the money to your bank account or cryptocurrency wallet. No wonder understanding what margin trading is should be a priority for everyone.

Modernity brings leverage to the table for everyone. One can leverage and scale-up every professional effort, reaching customers everywhere. The same applies to art, fame, personal brand with tools like Instagram or YouTube. You should also leverage your investment. But only when you know how to run the risk management correctly. 

Grab the opportunities

Everyone knows why the rich get rich, and the poor stay poor. It's all about the accumulation of power. Have you ever played Texas hold'em poker? The player with the biggest stack has an enormous advantage over others. Why? Because she or he can make the best of each hand that comes. The same can be done with trading. When you see an opportunity, you need access to more capital.

That's why margin trading is so popular. It gives you precisely this. You can have a higher profit from your stock, commodity, crypto, or forex trading tying up the same amount.

Let me give you an example. You are observing a sector - be it blockchain technology startups - and you see this public traded company that has this fantastic plans you believe in, but the stock is still reasonably cheap. You'd like to buy in the short term as much stock as possible, as there's some buzz growing.

Often a one-way trade to the skies

 When trading with a traditional brokerage account in your bank, you could use all the cash you have on hands - let's say $1,000 - and buy the company's stock. You will be able to buy precisely $1,000 worth shares. If you want more, you need to borrow some money.

This is precisely what you do with margin trading. Your broker lends you the money. If you buy the stock with a SimpleFX WebTrader with 1:2 leverage, you get $2,000 worth share with your $1,000 deposit.

SimpleFX WebTrader offers leverage as high as 1:50 for trading stock. This means that in this specific situation, you could be granted an automatic margin loan of $49,000 to realize an investment you believe in.

Now, let's say the company's stock went up 50%. If you traded with a traditional broker, you'd earn $500 - not bad. If you purchased with 1:2 leverage, the profit would double up to $1,000, and if you traded with 1:50 leverage you would buy $50,000 worth of stock and make $25,000!

Margin risk management is a must

Now, what happens when the market goes the other way? The higher the leverage you trade with, the faster you will lose the funds. That's as simple as this. That's why everyone thinking about margin trading should have high-risk tolerance, and understand that opening a position with 1:200 or 1:500 leverage is an excellent opportunity to make a considerable profit, but it is a one-way ticket. You either earn loads of money or clean your account. 

That's not as bad as it sounds. Each SimpleFX account has negative balance protection and no minimum deposits. Opening a position with leverage, you get the unlimited upside, and a drown bottom line downside - which is the deposit you keep on your account. 

Once the investment falls - can trigger a margin call - the broker will send you a message - if you have no money to deposit, they close the position. Sell the investment with loss. If you margin trade - respect the market and remember…

Now the best thing. With SimpleFX, you can run multiple accounts in different fiat and cryptocurrencies. This structure of hedging and risk diversification allows you to make the most of each opportunity that comes. All you have to do is to buy (or sell) on margin any asset you believe in be it Bitcoin, Ethereum, Ripple, Tesla, S&P 500, USDTRY, USDTRY, gold, oil - anything.

Here are some key takeaways:

  • Margin is when you borrow from broker money to buy securities
  • Margin trading is buying or selling the securities for borrowed money
  • On a margin trading account you can trade with leverage and the deposit is collateral for some time
  • Opening a margin account is more comfortable than opening a cash account

Good luck with your margin trades. Make sure you use your stop losses or practice with demo accounts or with little funds for a start.

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