About Margin
Margin in trading refers to the amount of capital required to open and maintain a trading position. It's a security deposit that traders need to have in their account to trade with leverage. Leverage allows traders to control a larger position size than their actual account balance.
Here's how it works: When you open a trade using leverage, the broker provides you with the additional funds needed for the trade, while you contribute a fraction of the total trade size as margin. This margin acts as a collateral to cover potential losses.
For example, with a 1:100 leverage, you might need only $1000 of margin to control a $100,000 trade. If the trade moves in your favour, you can make profits proportionate to the entire trade size, but if it moves against you, losses are also magnified.
For Forex, Gold, and Silver, new positions can be initiated if the margin requirement matches or is lower than the available free margin. When hedging, positions can be opened even if the margin level is below 100%, due to a zero margin requirement for hedged positions.
For all other instruments, new positions are accessible if the margin requirement aligns with or is less than the available free margin. While hedging, the margin requirement for the hedged position stands at 50%. The option to open new hedged positions is viable if the final margin requirements equal or are less than the total equity of the account.
Trading Leverage
Leverage in trading is the ability to control a larger position in the market with a relatively smaller amount of capital. It's like borrowing funds from your broker to increase the potential returns on a trade. Leverage is expressed as a ratio, such as 1:50, 1:100, or even higher, indicating how much larger your trade size is compared to your actual invested capital.
For example, with a leverage of 1:100, you can control a position size that's 100 times larger than your invested capital. If you have $1,000 in your trading account, you could potentially control a trade of $100,000.
The leverage applied to the account will take into consideration the Trading Account's Equity to determine the effective Leverage to be deployed.
If the trader’s account leverage is lower than that mentioned in tier table, then the account leverage will be applied (lowest will be applied).
Leverage Risk
Leverage risk, also known as leverage-related risk, refers to the potential for amplified losses when trading with leverage. Leverage allows traders to control a larger position size than their actual invested capital. While leverage can enhance potential profits, it also magnifies potential losses.
When a trader uses leverage, a relatively small market movement can have a proportionally larger impact on their account. If the market moves against the trader's position, losses can exceed the initial investment, leading to a situation known as a margin call. A margin call occurs when the trader's account equity drops below a certain level required to maintain the open position, prompting the broker to close the position to prevent further losses.
Leverage risk highlights the importance of proper risk management. Traders need to be aware of the potential impact of leverage on their trades and account balance. Setting stop-loss orders, using appropriate position sizes, and having a solid risk management strategy are crucial to mitigating the adverse effects of leverage risk and safeguarding trading capital.
Margin Call
A margin call is a crucial aspect of trading that ensures responsible risk management. It occurs when a trader's account equity drops below a certain threshold, known as the required margin level, due to losses incurred by open positions. This prompts the broker to request additional funds to cover potential losses and maintain the necessary margin.
At Axon Markets, we uphold a stringent margin call policy across all types of accounts. Our margin call level is set at 100%. This means that when a trader's account equity reaches a point where it equals 100% of the required margin, we take proactive measures to alert the trader. This commitment to a 100% margin call ensures that traders are well-informed and have the opportunity to manage their positions and equity effectively, fostering a secure and responsible trading environment.
Stop-Out
Stop out, in the context of trading, refers to a point at which a broker automatically closes some or all of a trader's open positions to prevent further losses. It's a safeguard mechanism that ensures the trader's account doesn't fall into a negative balance, protecting both the trader and the broker.
At Axon Markets, we implement a consistent stop out level of 50% across all types of accounts. This means that if a trader's account equity drops to 50% of the required margin level, our system will initiate automatic position closures, starting with the position that is incurring the most substantial loss. This commitment to a 50% stop out level underscores our dedication to responsible risk management and helps traders maintain a secure and manageable trading environment.
