Is margin trading the same as leverage trading? While the two terms may sound one and the same, it is important to know that margin vs leverage trading works very differently. When it comes to margin trading, money borrowed is always secured by collateral.
This is precisely how it works: You buy shares of financial instruments with borrowed money and then sell them at a higher price than your initial investment. When the market falls in value below your original purchase price, you sell them back to the broker at their original price, then repay the loan with interest over time and vice versa. And how do you calculate margin leverage?
Margin vs leverage also involves calculation as it is a crucial part of understanding how they work in forex trading. The good news is that many brokers have a margin calculator, but you can still do it yourself without ever needing a calculator.
For example; If you want to open a position with £25,000 with a leverage of 25:1, then the margin would be; £25,000/25, which is £1,000
In other words, Margin = Size of the Position/ The Higher value in the Leverage Ratio.