【2024 Margin】Margin Trading Concept

What is Margin

Margin is a form of trading that refers to investors borrowing money to seek higher profits from price fluctuations. The following are concepts related to margin:

• Borrowing funds

  In margin trading, investors can borrow funds from trading platforms or brokers to buy large or large amounts of assets (such as stocks, cryptocurrencies, etc.).

• margin

  Investors need to deposit a certain amount of money on the trading platform, which is known as margin, meaning a guarantee of borrowed funds.

• Leverage effect

  1. Investors can trade using leverage to buy larger assets with smaller funds.

  2. For example, if you use 10x leverage, an investor can trade assets with a margin of only 10% and trade assets with 10 times their capital.

• Risk and Profitability

  The potential profit from margin is substantial, but at the same time it increases the risk. In the event of a bad market situation, investors' losses may exceed the amount of the margin, resulting in large budget losses.

• Risk of closing

  If the margin is insufficient to support the position, the trading platform may force a closing, and automatically sell the asset when the market price is unfavorable, achieving the effect of stopping the erosion.

Margin Borrowing Ratio

Margin Loan Ratio refers to the ratio of the funds borrowed by investors to their own funds in margin trading. This ratio helps investors understand their leverage levels and potential risks.

• Margin Ratio: Borrowing Ratio = Borrowed Funds Margin Borrowing Ratio = Margin Borrowing Funds

• Margin Requirement: Typically set by the trading platform or broker, it represents the proportion of the funds that investors need to deposit to the total trade amount.

Suppose an investor wants to buy $10,000 worth of assets on margin, the broker requires a margin ratio of 20%. So:

• Margin = 10,000× 20% =$2,000

• Borrowed funds = 10,000−2,000=$8,000

• Borrowing Ratio = $8,000: $2,000 =4

This means that the investor has a lending ratio of 4:1, that is, controlling $4 of assets for every $1 of funds. However, the higher the borrowing ratio means the higher the leverage. The higher the leverage, the greater the profit, but the greater the risk. If the market price falls, the value of the assets held by investors may fall, leading to insufficient margin, or a “Margin Call” crisis, requiring investors to replenish or close their positions.

What is Margin Call?

Margin Call, also known as “Margin Call”, is a notice issued by a broker to investors asking for additional funds to meet margin requirements. Before making margin investments, each broker sets minimum margin requirements for each investor and requires a certain percentage of funds in the account. A “Margin Call” occurs when an investor's net worth of account funds falls below this level. At this point, investors can respond in three main ways:

• Replenishment:

• Investors can add funds to the account and deposit additional funds to meet the minimum margin requirements.

• Closing position:

• If investors are unable or choose not to add funds, the broker may force a closing and automatically sell some or all of your holdings on your behalf to prevent further losses.

• Adjust your holding:

• Investors can choose to reduce their holdings to reduce margin requirements.

And when the market price of an asset in your hand falls to a certain level, investors should sell the asset immediately, i.e. “close it”. In addition to avoiding further losses, the funds in the “crab goods” can also be released and redistributed among other potential investment assets.

Where can I trade on margin?

In Futu, it is not possible to make a simple share sale.Margin Trading.

Margin Trading Advantage

At Futu Frying Expansion, you can enjoy 5 great benefits:

1. OfferMargin Rate(Annual interest rate): Low interest rates that effectively reduce investment costs. The annual interest rate is 365 days per year and is calculated in natural days. Annual interest rates are adjusted periodically to accommodate changes in currency exchange rates

2. Enhance asset purchasing power: Leverage to maximize potential returns

3. Hong Kong/US Stocks Open: Support for Multiple Securities Futures Trading to Hold Back Against the Market

4. UNIFIED PURCHASING POWER: CROSS MARKET TRADES WITHOUT CURRENCY EXCHANGE, HELPING YOU AVOID THE RISK OF EXCHANGE RATE FLUCTUATIONS

5. Margin is Daily Zero Interest: Designed for short-sighted investors, buy and sell at 0 interest every day, helping you maximize your potential return!

How do I open a margin account and trade on margin?

1. Go toFutu Internet, and register a new account.(Register now)

2. Open an integrated account with a Futu account, click below to open it now and enjoy the bonus of opening up to USD.(How to open an account)

3. New customers in the Futubull App will see their account selection when they open. You can use this option to apply for a financial security account.

Existing customers with cash accounts can upgrade through the Futubull App. Click “Account”, select the cash account you want to upgrade again, then click “Free upgrade” to apply for the upgrade. Generally, only 1 business day is required to complete the upgrade.