In most cases, retail traders will find it hard to raise such a substantial amount of trading capital, which prevents them from holding any worthwhile positions in the market. Therefore, brokers allow their traders to enter the market with far less money by offering the option of trading on margin.

Of course, using such a high amount of leverage will induce wild swings in the profit and losses, as the trader is essentially holding a large position using a small trading capital. Irrespective of the outcome of the trade, a trader is fundamentally borrowing a staggering amount of money from his broker to hold a position in the market, which means that the broker is investing their money in a trade.

Of course, the broker will employ minimum margin requirements and margin calls to protect their investments against market losses, which means that the trader will face a margin call if a position moves against him and the account equity reaches the minimum margin requirements. Since the broker is lending money to a trader to open a position in the market, they will require some fees or compensation for the money invested in the market. Either way, trading on margin blocks the funds lent by the broker, which requires the trader to pay interest on the borrowed margin.

The interest, or more commonly known as SWAP, is accrued for every overnight trade, as the interests are charged after the end of the New York trading session.

Margin and Leverage in Forex Trading

SWAP rates are determined by the base currency used for trading and the actual difference between the interest rates of the currency pairs invested in the market. Since the NZD has a stronger base rate 2. Therefore, traders have the potential of making more money by going long on the NZDCHF pair by enjoying the positive SWAP as well as making money on any possible upward movement of the currency pair.

Alternatively, if a trader shorts the NZDCHF, he will have to pay a negative SWAP fee or interest on his position, even if the market moves in his favor for potential gains in the market. SWAP rates are applicable for all traders who are trading on margin and typically hold their trades overnight.

Some brokers offer traders the convenience of earning interest on unused capital in their trading accounts. Although retail traders mostly trade the markets using a small amount of trading capital, several professional as well as institutional traders are known to hold a significant amount of trading capital that may or may not be used for trading purposes. Of course, the actual interests accrued on these accounts vary, but a few brokers sometimes offer higher returns to attract massive investments from wealthy traders.

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Please, refresh the page and try one more time. Error occured! The minimum margin requirements will differ if the initial leverage is changed. Again, stop-losses are the surest way to manage leverage in forex.

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Holding out in hope that it will somehow go right is a very poor trading strategy. Take your loss, get back in the saddle, and earn it back. Your broker should support a prudent forex trading strategy and help you to build one. Brokers are incentivized in this by new rules on transparency. ESMA regulations in Europe only recently, force brokers to display the percentage of clients that lose money.

When you are choosing your forex broker, this is clearly a factor to keep in mind.