Leverage trading is any type of trading whether its stocks, CFD Trading or commodities that involves borrowing money from the broker or increasing the quantity purchased involved in a trade beyond the trading limit you could afford when paying in cash. Many people are attracted to CFD Trading due to the high amount of leverage that brokers provide. Leverage allows traders to gain more exposure in financial markets than what they are required to pay for. It’s not a bad thing to trade on leverage if you know what you’re doing and understand the risks. But if that’s not the case, it’s extremely risky and you could potentially lose a lot more than you can afford to.
What is leverage in CFD Trading trading?
Leverage in CFD Trading is a handy financial tool that allows traders to increase their market exposure beyond the initial deposit. This means a trader can enter a position for $10,000 worth of CFD and only need $1000, in a ten-to-one leverage scenario. The amount of CFD Trading leverage available to traders is usually made available through your broker and the amount of leverage will vary according to regulatory standards that preside in different regions. However, it is essential to know that gains AND losses are magnified with the use of leverage. In adverse market scenarios, a trader using leverage might even lose more money than they have as deposit.
Margin trading CFD Trading commodities:
Futures Margins
Futures margin requirements are set by the exchanges and are typically only 2 to 10 percent of the full value of the futures contract. The amount of margin required can vary depending on the perceived volatility of the underlying asset.
Initial Margin
Before a futures position can be opened, there must be enough available balance in the futures trader’s margin account to meet the initial margin requirement. Upon opening the futures position, an amount equal to the initial margin requirement will be deducted from the trader’s margin account and transferred to the exchange’s clearing firm.
Maintenance Margin
The maintenance margin is the minimum amount a futures trader is required to maintain in his margin account in order to hold a futures position.
If the balance in the futures trader’s margin account falls below the maintenance margin level, he or she will receive a margin call to top up his margin account so as to meet the initial margin requirement.
