12 Jul 2023
Leverage allows traders to hold larger positions than the initial deposit. Traders are allowed to hold positions with only a fraction of the value required. The higher the leverage, the larger the position the trader can execute for the same amount of initial deposit.
For example, a client using 50:1 leverage can hold a position in the forex market of $100,000 with a margin of $2000. For a 100:1 leverage, the client will need a $1,000 margin to hold the same position.
Leverage increases the potential of high return when the market moves in a trader’s favour. However, traders are to note that leverage will similarly act against them when the market moves against their predictions.
When a trader opens a position in the market with the broker, he needs to put an initial deposit. The cash deposit will act as a deposit to cover any credit risks.
Examples based on Standard account with a leverage of 100:1
| Asset | Price | Margin |
|---|---|---|
| Forex | Eur/Usd @1.18000 | Margin=(1100,000$1.18000)/(100)=$1,180.00 |
| Spot Gold | Gold @$1894.00 | Margin=(1100$1,894.00)/(100)=$1,894.00 |
| Spot Silver | Silver @$24.90 | Margin=(15,000$24.90)/(100)=$1,245.00 |
Margin Call is a level set that defines the minimum amount of money required to trade in the market. When your account falls below the margin call level, you will need to make an additional deposit to maintain your positions. Alternatively, you can close some of your positions to reduce your required margin. At COMMO T, Margin Call is set at 100%.
If you are unable to maintain sufficient funds in your account after hitting Margin Call, and if your account value depreciates to the Stop Out level, your positions will be closed automatically to prevent further loss to your capital. At COMMO T, Stop Out level is set at 50%.