A margin account is a forex account that allows a trader to leverage deposited funds many times to make trades. The trader can borrow an agreed upon amount based on a percentage of the money deposited in the margin account. For example, a 1% margin account means that, with a deposit of $5000, a trader could leverage $500,000 worth of capital – this is 100 times leverage.
Changes in the value of a currency pair may only be a few hundredths of a percent, so traders use leverage to amplify those returns many times. A margin account allows traders to take up large positions with relatively little capital. However, margin accounts are often set up to close out (stop) a losing position before the trader loses more money than he has deposited in the margin account. If a trader has time after receiving a margin call, he can put in additional funds to keep the position open.
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