đWhat is Initial Margin?
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âŹEnglish BelowâŹ
đ°Margin or Initial margin is the amount of money that a trader needs to deposit with a broker or a platform to open and maintain a leveraged position. Margin is also known as the collateral or the security for the borrowed funds that are used to amplify the trade size and potential returns. A margin account is a type of account that allows you to use leverage, which means borrowing money from your broker, to increase your purchasing power and potentially magnify your returns.
đFor example: Suppose you want to buy 100 shares of a stock that costs $50 per share. The total value of the purchase is $5,000. If you use a cash account, which is a type of account that does not allow leverage, you need to pay the full amount of $5,000 with your own money. However, if you use a margin account, you can borrow some of the money from your broker and pay only a fraction of the purchase price with your own money. This fraction is called the initial margin.
Another example is that if you want to buy 1,000 EURUSD at a leverage of 1:100, meaning you will need at least 10 EUR in the account. If your deposit currency is USD and EURUSD rate is 1.2, then your margin used for opening this position will be $12.
