If you run your own business, then there may be a number of ways that you invest your profits to make more money. For many UK businesses, one of the most popular methods is investing into the huge global FX market.
With a trading volume of four times the global GDP of all known countries and a daily trading volume that is over 50 times bigger than the New York Stock Exchange’s, it is easy to see just how popular this form of business investment is. When you factor in how easy it is to access online and the handsome returns you could see, it becomes clear why many entrepreneurs put their money into currency.
Of course, as with all investment types, you need to grasp the basics first before investing your company profits. This will ensure that you not only succeed in the long term but also have a handle on what it all involves. Ignorance is no comfort when you lose all your money due to something you did not know about!
Get to grips with margins in FX
A key part of getting to know how this global financial market works is the margin levels that online FX brokers set. In simple terms, these margins are what brokers apply to certain currencies, shares or commodities that you can trade with them. Perhaps the most important to understand is the one applied to any initial trade you may open in affected investment types.
This initial margin is often expressed in percentage terms of the overall trade and shows the minimum amount you need to put down personally as a deposit to open the trade. Let’s say, for example, that your broker had a 20% margin to open a trade on Google shares. This means that if you wanted to open the trade for a total value of £100, you would have to have at least £20 in your account to do it. The remaining £80 would be put up by the broker themselves.
It is also worth knowing that these margins will often change over time, so be sure to keep up to date with your broker’s levels. As this HotForex review 2018 shows, new margins can be announced by your broker at any time and can have an impact on how much money you need to fund certain trades.
What about margin calls when trading?
If you are new to trading, you may have heard margin calls mentioned but not be sure what they are exactly. In some ways, they work in the same way as the initial deposit margins above but only come into effect when your trade is open. It occurs when the trade moves against you and the broker has to ask for more money to be put into your account to cover this. As above, all brokers will have certain set margin levels that are applied to various instruments you can trade with them. These margin levels can change frequently, so it is worth keeping an eye on them at all times.
How do changing margins affect you?
Now that we know what margins are and why brokers use them, it is worthwhile spelling out how changing margins can affect your FX trading as a successful entrepreneur. This will all depend on whether the percentage margin levels go up or down to a great degree! However, the main takeaway is that a change to broker margins will mean a change to how much money you should have in your account to fund trades or keep them open.
If the margin levels go up, you will need more, whereas if they go down (which is quite unlikely!), you will need less. This naturally has an impact on the funding of your account and whether you have the required cash necessary after any change to continue trading.
Don’t let changing margins confuse you
There is no doubt that the FX market is home to some complex terminology and ideas at times. The concept of margins and how their changing affects you as a trader can be a confusing one for many. If you have found yourself struggling with this in the past, then hopefully the above has made it clearer. In simple terms, changes to margins means changes to the money you need with your broker to continue trading. As long as you have the funds to cover the new margin levels, then all is good. Just remember that this applies as much when a trade is open as when you are initially setting one up. By doing this, you will still find it simple to put your extra business to good use.