If you are interested in trading on the financial markets, you need to know about leverage. This post discusses the basics of leveraging your money on the Singapore market and some top strategies to do so.
Margin Trading- trading in Singapore on margin means that you borrow money from your broker to purchase the financial instruments you want. So if you have a trading account with $20,000 in it, for example, and use 100 percent of this equity as collateral to trade futures contracts worth US$200k (which is 20 times your initial equity), then we say that your position is margined at 200%.
This way, if the market moves against you by just 0.25% or $500 per contract, then almost all of your equity will be wiped out, and only the remaining 50% would remain intact.
This enables traders to control more prominent positions than they otherwise could and increases their risk exposure substantially since an adverse move can wipe them out completely. Thus, you need to be very cautious when trading on margin.
The Bottom Line
A margin is an excellent tool for experienced traders who know what they are doing and can handle potential volatility in their positions. It’s easy to get sucked into the excitement of seeing your equity grow significantly overnight, but without proper risk management, it may not always turn out well.