Margin Requirements to Day Trade Currencies
How much leverage do you really have?
Please note that the use of leverage in trading multiplies both profits and losses.
Since currencies are traded in lots (or contracts) and each standard lot is worth 100,000 units of the base currency, how much money does a day trader need to buy or sell one lot?
If a trader was trading stocks intraday, 100,000 worth of stock will require a margin deposit of 25,000 (one fourth the value of the entire amount, which is the same as a 25% margin requirement). This represents a leverage of 4 to 1.
In currency trading, the margin requirement can commonly be anywhere from 1,000 (1%) to 2,000 (2%) units of the base currency per lot depending on the broker.
This represents a leverage of 50 to 1 to 100 to 1. Even though a 50 to 1 margin is excessive for most trading styles, it is available to the trader nevertheless. The trader is free to decide what amount of leverage to use depending on the nature of the day trading strategy that he is using, his available trading capital, and the risk he is willing to take on each transaction.
The use of leverage multiplies the gains as well as the losses - so proceed with caution if you decide to use it.
Learn about the risks and uses of margin in my day trading training online sessions.
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