Peculiarities of Margin Trading and How to Trade Effectively with Leverage

Published: November 23, 2020 Updated: April 21, 2023

If you're interested in investing and trading in international markets, you're probably already familiar with the concept of leverage. Some traders find such financial leverage very useful (especially if you have a very small initial capital), while others completely reject marginal trading and rely only on their own funds. In this material we will use the example of a broker NPBFX (go online) we will explain what nuances should be considered when trading with leverage, how not to lose your deposit and earn more when trading on margin.

Margin Trading

To begin with, it's worth explaining what leverage is. Leverage refers to the use of borrowed funds broker in order to increase their assets and obtain higher profits when making transactions. In simple words, leverage allows the trader to get more profits with less equity. The amount of borrowed funds can be different. It depends on a broker you are working with (project reviews). The loan amount can be ten, twenty or one hundred times your own capital. For example, for clients NPBFX brokerage company provides the leverage of 1:1000 on the Master account, that is the loan amount can be 1000 times the amount of your deposit.

Especially beginners think that margin trading is very dangerous and has many pitfalls. In fact, there is nothing scary about using leverage. Here's how it works: leveraged funds are deposited into your account and go straight into a trade. If the order is unprofitable, then when your personal funds are reduced to a specific critical level (its level depends on the conditions of the brokerage company you are serviced with) it is closed. If you decide not to close the transaction and leave it open for a certain period of time, then when the order is carried over to the next day, the broker will need to pay a swap - the difference between the interest rates on the credit and the deposit. The swap is considered an analogue of the CP usage fee.

Example of margin trading at NPBFX

Let's say you opened a trading account "Master" at the broker NPBFX. You have 100 euros on your account, the loan value is 1:100, the transaction amount is 10 100 euros. If the transaction is loss-making, then if your personal funds decrease to 20 euros (for example, let's take such a critical level) the order will be forcibly closed. On the order account there is 10 020 euros. The loan amount (10,000 euros) will return to your NPBFX account, and your loss as a result of the transaction will be 80 euros. If the transaction turned out to be profitable and you earned EUR 900, you will have EUR 11,000 on your account for this order. Of these, 10,000 euro will return to your NPBFX account and you will receive back your 100 euro plus 900 euro as a profit on the transaction.

Trader's benefits when making margin trades

As a result, the trader receives the following benefits when entering into margin transactions:

  • The ability to open a deal with a much larger volume, which would be unavailable when using only your personal capital.
  • Access to major international markets, which without leverage is often impossible for most investors due to the condition of a large amount of start-up capital to enter.
  • Thanks to the leverage of the broker, the trader can make a deal directly with a minimum amount of their own funds.
  • Speculation and making profits not only on the increase in the value of the asset, but also its decline at the expense of short positions.
  • Large potential profits due to the greater volume of transactions.

NPBFX has been providing services to traders and investors for a long time - since 1996. The conditions for margin trading at the broker are very attractive, that's why many traders use NPBFX leverage in order to boost their deposit in a shorter period of time and get more profit from transactions.

For margin trading the broker offers 3 types of accounts ("Master", "Expert", "VIP") with direct access to the major stock markets, currencies, commodities, indices, cryptocurrencies. The maximum leverage on the "Master" account is 1:1000, on the other two accounts - 1:200. This is one of few brokers who provides such a big leverage and allows to make orders in large volumes with a small initial capital (on the "Master" account minimum deposit is only $10/euro or 500 Russian rubles):

Trading with KP at NPBFX broker

NPBFX clients receive the best liquidity from Tier 1 banks and fast execution speed thanks to STP-technology. Each trader in case of force majeure caused by the broker is insured for the amount of 20 thousand Euros (the company is a member of the International Financial Commission). To make margin trading effective and working for the trader, not against him, we will conclude with proven tips that allow you to correctly use CP in trading:

  • Focus primarily on the size of your capital and before entering into a transaction, calculate the risks based on your personal amount.
  • For beginning traders, we recommend using a small loan amount from the broker, so if the deal is unsuccessful, you will not lose the entire amount at once.
  • Observe risk management. Ideally, you should not use more than 5% of the deposit amount in one trading operation.
  • To minimize risks when trading on margin, be sure to set a Stop Loss.

Thanks to these simple but effective tips, your leveraged trading will be effective, and most importantly, efficient. You should not be afraid of margin trading. With the right approach, it is a good financial leverage with which you can increase your deposit size in a shorter period of time and with greater financial results. For margin trading we recommend choosing a reliable broker. As such, especially for the beginning trader, NPBFX company ideally approaches. To open the deposit and to be registered at the broker fast and simple. To do it, follow the link to the official website of the company and follow the simple instructions.

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