LEVERAGE RULES

Alain FX leverage depends on the type of trading account and the volume of funds it contains. Margin requirements increase when the funds available in a client's account increase. This is due to the increasing costs of hedging open orders. As a result, leverage is changing as well.

You can use any amount of leverage, ranging from 1:2 to 1:200*, when trading on the forex market through Alain Fx. This provides you with the freedom to choose the trading strategies that suit your deposit size.

Leverage Ratio and Minimum Margin Requirements

Leverage is expressed as a ratio and is based on the margin requirements imposed by your broker.

For example, if your broker requires you to maintain a minimum 2% margin in your account, this means that you must have at least 2% of the total value of an intended trade available as cash in your account, before you can proceed with the order.

Expressed as a ratio, 2% margin is equivalent to a 50:1 leverage ratio (1 divided by 50 = 0.02 or 2%). The following table shows the relationship between leverages and minimum margin requirements:

EAs a trader, it is important to understand both the benefits, and the pitfalls, of trading with leverage.

Using a ratio of 50:1 as an example, means that it is possible to enter into a trade for up to 50 dollars for every dollar in the account.

This is where margin-based trading can be a powerful tool – with as little as $1,000 of margin available in your account, you can trade up to $50,000 at 50:1 leverage.

This means that while only committing $1,000 to the trade, you have the potential to earn profits on the equivalent of a $50,000 trade.

Of course, in addition to the earning potential of $50,000, you also face the risk of losing funds based on a $50,000 trade, and these losses can add up very quickly.

Traders suffering a loss without sufficient margin remaining in their account run the risk of triggering a margin closeout.

The profit or loss for a trade is not realized until the trade is closed. An open trade or position is said to be unrealized.



Margin Closeout

When trading on leverage, the funds in your account (the minimum margin) serve as your collateral.

Therefore, it is only natural that your broker will not allow your account balance to fall below the minimum margin.

When you have one or more open trades, your broker continually calculates the unrealized value of your positions to determine your Net Asset Value (NAV) .

Should your open positions lose so much potential value that the remaining funds in your account - that is, your remaining collateral - is in danger of falling below the minimum margin limits, you could receive a margin closeout.

At Alain FX, a margin closeout will cause all tradable, open positions in your account to automatically close at the current fxTrade rates at the time of closing.

For this reason, it is to your advantage to avoid margin closeout. We'll discuss strategies to avoid a margin closeout in Lesson 4 - Making That First Trade.