Margin refers to the practice of trading on margin, which is an amount of collateral, similar to a deposit, that allows traders to control larger positions than would otherwise be possible Trading on leverage magnifies both the potential gains and losses of a trade, and a margin account must be kept within a predefined maintenance level, otherwise the trader will incur margin calls. Margin is used in equity, forex and commodities trading.
Trading on margin involves greater risks that fully funded trading. The maintenance level is set by your broker, and different brokers will offer different levels of margin. The available margin may also depend on the account size and the underlying being traded, with derivative products such as options or CFDs typically permitting greater leverage than debt instruments. Margin trading is very common in the forex market, both spot and futures.
The maintenance level is the minimum balance specified by a broker for a margin account. Should a traders margin deposit fall below this value, they must top it up immediately, a situation known as a margin call. Such calls can be extremely expensive as they may require the liquidation of other positions in order to meet the demand, and keep the account open.
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