What is Margin Trading & Leverage Trading

When many individuals want to invest in equity or forex trading, they see great potential for higher returns in opportunities that require more initial capital than they have. In such cases, they decide to borrow money from a broker or some other institution to raise additional capital for their investment.The broker, in turn, asks the individual for some assurance that the individual will repay the borrowed amount with interest if the trade goes in another direction.The amount invested by an individual, including the collateral provided, is called margin, and this practice creates a trading power called leverage.Margin is mainly used to obtain and generate high leverage which has the potential to increase both profit and loss.Although they look similar at first, there are several ways to differentiate these trade terms when comparing them conceptually.

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What is the Margin

Margin can be defined as the actual difference between the total value of the securities held in the margin account and the amount borrowed from the broker to execute the trade.Margin trading is a method of using an individual's assets to obtain a loan from a broker. Later the earned money is used in the form of trade.An investor has to open a margin account to buy on margin with make a small initial investment. This amount acts as leverage, and is called the minimum margin.The amount invested in the trade is called the initial margin, and the amount kept in the margin account is called the maintenance margin.If the amount falls short of value, the broker will either call to raise more money or return all of the debt by using the remaining funds or by liquidating the investment in a practice known as a margin call.

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What is leverage

Leverage is the method of borrowing money to finance a project and increase its future profitability. Many companies and consumers use the leverage method to achieve goals.While investors use leveraged trades to increase their profits through options, margin, or futures accounts, companies use debt financing to invest in larger operations and capitalize on rising equity prices. Leverage trades are used to finance assets with leverage. A leveraged trade is usually referred to as the ratio between the amount invested and the amount allowed to trade after borrowing.Hence, a person is spending Rs 1,000 in increments for every Rs 100,000. Leverage will be considered as 1:100.
However, potential losses are likely to increase. If the trade fails significantly, a person will lose a huge amount of borrowed money.

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Difference Between Leverage Trading & Margin Trading

• The key difference between margin and leverage trading in many different contexts, such as forex or equity trading, is that leverage refers to the amount of purchasing power you have while borrowing money.

• Another major difference between margin and leverage trading is the fact that while both require investment, margin trading involves using the collateral in the margin account as a means of borrowing funds from the broker with interest. Must return.

• In these situations, the borrowed money acts as collateral, allowing the person to make important trades.

• The two concepts are largely interrelated, however, it is important to note that comparing Margin VS Leverage is not the only way to generate margin account leverage as it can be done using strategies that Has nothing to do with margin accounts.

• Finally, when distinguishing between margin and leverage, it is proven that leverage methods that are prudent over long periods minimize losses.
  Conversely, short-term margin investing provides higher reasonable returns in high liquidity markets.

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