What is foreign exchange margin trading (leveraged foreign exchange trading)

Trading principle

Foreign exchange margin trading is a long-term foreign exchange trading method between financial institutions and between financial institutions and investors by using the principle of leveraged investment. At the time of trading, the trader only needs to pay a deposit of 1%- 10% (the deposit, the same below), and then trade with a limit of 100%. So that every small investor can also buy and sell foreign currency in the financial market and earn profits.

For example, today, Mr. Zhao wants to make a transaction equivalent to $65,438+000,000. Through margin trading, assuming the margin ratio is 65,438+0%, Mr. Zhao only needs 65,438+000,000 * 65,438+0% = 65,438+0000 USD to make this transaction. In other words, as long as the capital of 1 0,000 yuan can be used for the transaction of10,000 yuan, that is to say, the capital is enlarged by 100 times. Therefore, if you invest 1 million dollars, you can engage in the transaction of 1 million dollars.

However, when the loss exceeds a certain amount, traders have the right to stop the loss mechanism, which means the so-called "decapitation" in the stock market. Therefore, when the amount in the account is lower than a certain proportion of the transaction amount, the reverse forced liquidation will be started.

Transaction characteristics

This foreign exchange trading method was produced in London in the 1980s, and then flowed into Hong Kong. In addition to the deposit system and futures trading, foreign exchange deposit trading also has different characteristics from futures trading:

(1), but the intermediate field of foreign exchange deposit trading is intangible and unfixed, and it is directly carried out between customers and banks, and there are no intermediaries such as exchanges;

(2) There is no maturity date for foreign exchange deposit transactions. Traders can hold positions indefinitely;

(3) The foreign exchange deposit trading market is huge, with many participants;

(4) Foreign exchange deposits are rich in trading currencies, and all convertible currencies can be used as trading varieties;

(5) However, the trading time of foreign exchange deposits is 24 hours without interruption;

(6) For foreign exchange deposit transactions, it is necessary to calculate the interest rate difference between various currencies, and financial institutions must pay or deduct deposits from customers.

Trading risk

Margin trading is a high-risk financial leverage trading tool. From its own characteristics, risks mainly come from three aspects:

(1), high leverage. Because the participants in margin trading only pay a small percentage of margin, the normal fluctuation of foreign exchange prices is magnified several times or even dozens of times, and the gains and losses brought by this high risk are amazing.

(2) The background of frequent fluctuations in the foreign exchange market. The daily turnover of the international foreign exchange market can reach more than $65,438+0.5 trillion, and many international financial institutions and funds are involved. Economic policies of various countries change at any time, and various unexpected factors occur from time to time. These may be the reasons for the large fluctuations in the exchange rate.

(3) the difficulty of monitoring. Traders and market regulators are fully aware of the difficulty of risk monitoring after intervening in deposit transactions. Because there is no fixed trading place and the exchange rate fluctuates greatly. Customers often suffer huge losses. This is of course due to the traders themselves, but there are also many problems from the loose market structure. After a period of exploration, the Hong Kong Securities Regulatory Commission has formulated the Regulations on Foreign Exchange Trading of Deposits and related rules, which can be regarded as a relatively complete rule system so far.

Margin operation

Different from margin trading, firm trading can greatly implement various trading strategies because of the small amount required for operation.

Example 1. Suppose Mr. Wang and Mr. Qian both buy1000000 euros, with a purchase price of 0.8500 and a selling price of 0.8700. However, Mr. Wang's operation method is firm trading, and the principal needs 1 million euros, while Mr. Qian uses leveraged margin trading, and the principal only needs 1 million euros.

Wang: 1, 000,000 * (0.8700-0.8500) = 20,000.

Money: 1, 000,000 * (0.8700-0.8500) = 20,000.

Example 2. Suppose that in the same example, Mr. Wang and Mr. Qian both bought Euros/Dollars1million at the buying price of 0.8700 and the selling price of 0.8500. Their losses are as follows:

Wang: 1, 000,000 * (0.8500-0.8700) =-20,000.

Mr. Qian: 1 0,000,000 * (0.8700-0.8500) =-10,000 (because Mr. Qian's principal is10,000).

From the previous two examples, we can easily find that margin trading can play a greater leverage role, and the biggest loss is also the amount of margin, so margin trading can manage your assets more easily and make your investment more flexible.

In other words, margin trading can make you experience several times or dozens of times of speculative career at the same time, whether you go to heaven or hell.