What is
Trading in margin basis?
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| Trading in margin basis |
A- to be able
to understand easily the introduction of margin basis mechanism we will explain
it by a significant example will accompany us all the time.
- Suppose
that you want to trade in cars so that you will buy a car then you will sell it
in the market for a buyer at a higher price, so how you can do this?
you will go to one of the big cars agencies
and choose one that think you will find high demand on it in the market assume that the price of the car with
the car agency is $ 10,000
so All you
had to do is providing the amount of
money and paying it to the car agency and thus you are the owner of a car worth
$ 10,000
Since the purpose of purchasing
the car is trading, you will go to the market and offer your car in the
hope that it will be sold at a higher price than the price you bought it.
Now suppose that when you went to the market
you found that the demand for your car is high
and there are a lot of people would like to buy it..so will offer your
car at a price of $ 12,000, for example ..
If you sold
it at this price your net profit from trading on this car is $ 2,000.
v But what if
I went to the market and found that the demand for the quality of your car is
weak and that there is no one wants to buy at a price of $ 10,000 and the
maximum price one can buy your car is $ 8,000?v simply means that if you've
sold at this price, the loss in trading this car will be $ 2,000.
But wait.............!!!!!!!!
to do the previous process, you need to have
the amount of $ 10,000 from the beginning to be able to purchase the car .. this is your capital in trading. and If
you were not had this amount you will not be able to buy the car and therefore,
you will not be able to sell it in the market..
meaning that
in order to be able to trade in cars you must have the entire value of the car.
so, Is there
a way to do this process without having
$ 10,000? Yes there is a way,by Trading
in margin basis.but how you can do that??????????
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| Trading in margin basis |
Suppose you
do not have the entire amount of 10000$ and you want to trade in cars without
having this amount,you go to the car agency and offer to buy the car by margin
basis and that mean the agency will accept to give you the car if you paid only
1000$ and the agency will reserve the car for you, you can sell it any time by
giving order to the agency you can sell it by 12000$ or 8000$ if you sell it
for 12000$ the agency will take only 10000$ and give you the rest(2000+1000) by
this way the cars agency to ensure getting the full value of the car and you
also get the full profit.
Paying 1000$
for something worth 10000$ this called Leverage
So, Trading
in margin basis mean the apportunity to trade in something by small amount of
money where it worth more than this amount you paid depending on the Leverage the company give you.
Forex trading also depend on Leverage
you just pay small amount of money and the forex company give you Leverage may
reach to 1:400 in some companies
