At Capital Zone Fx, our clients have the flexibility to trade using leverage from2: 1 to 30:1with the same margin requirements depending on the instrument.
What is Margin?
Margin is the money borrowed from a brokerage firm to purchase an investment. Margin can^also be defined as the difference between the total value of the securities held in an investor’s account and the loan amount received from the broker. Buying on margin is the act of borrowing money to buy securities. The practice involves purchasing an asset where the buyer pays only a percentage of the asset’s value and borrows the rest from the bank or broker. The broker acts as a lender and the securities in the investor’s account act as collateral.
Margin is also called any payment required to enter a Contract For Difference position and is expressed as a percentage of the position size (eg 5% or 10%). For example, at a 10% margin, a $10,000 position would require a deposit of $1,000. In order to open new trades, the margin level in your trading account must be equal to or above 100%; otherwise, new transactions will cause your trading account to be completely restricted.
What is Leverage?
Leverage is an investment strategy for using borrowed money (particularly various financial^instruments or borrowed capital) to increase the potential return on an investment. Leverage can also refer to the amount of debt a firm uses to finance assets.
Using leverage means you can trade positions larger than the amount of money in your trading account.
Leverage is expressed as a ratio such as 5: 1, 10: 1, or 30: 1. Let’s say; a company was established with an investment of 5 million dollars received from investors. Equity in the company is $ 5 million, which is the money the company can use to operate. If the company uses debt financing by borrowing $ 20 million, it now holds $ 25 million to invest in business activities. Hence, the company shareholders also have more chances to increase their share value.
Howisit possibleto tradewith 30 timesthe amount you have?
If you trade on a margin at Capital Zone FX, you will receive a free short-term loan allowance which allows you to purchase an amount in excess of your account’s asset value.
Disadvantages of Leverage
Leverage is a versatile, complex tool. Theoretically it sounds great but in real life things might not work as expected. The gain from leverage can be large as well as the loss. If an investor uses leverage to make an investment and the investment acts contrary to the investor’s expectations; the investor’s loss would be much greater than it would have been if he did not use leverage.
Each client within Capital Zone FX is fully responsible for monitoring their trading account activities. However, as Capital Zone FX; we have a collateral call policy to ensure that your maximum risk does not exceed your account equity. If your account assets fall below %100 of the margin required to maintain your open positions, we try to inform you with an alert call which emphasizes that you do not have enough equity to support the open positions