please explain the diffrence between margin and leverage

[amanbhati]

sir,
i am new to trading
i m confused in two words...
please explain the diffrence between margin and leverage

 

[DSM]

Amanbhati

In simple terms : Margin is the deposit you keep. Leverage is what you get to transact in return.

E.g To buy BankNifty Futures of 25 lot size @ 17,680, you will need a margin (deposit with the broker) of approx. 35,500 to carry fw. a trade overnight. While the actual value of the trade is 25*17,680 = 442,000.

Leverage is the exposure/power/advantage that you get. In the above case, 442,000 minus 35,500 is the leverage i.e 406,500

The ratio of leverage or exposure would be 442,000/35,500 i.e 12.45

sir,
i am new to trading
i m confused in two words...
please explain the diffrence between margin and leverage

 

[amanbhati]

thanks sir
sir it s a humble request
please explain in equities with example...
i m confused in 2x leverage and 2%margin....
please sir..........

 

[jagankris]

thanks sir
sir it s a humble request
please explain in equities with example...
i m confused in 2x leverage and 2%margin....
please sir..........

2x leverage means - two times.
Say you have 10,000 rs in your account.
You can day trade - take positions (long or short) 20,000rs max limit.

2% Margin means - Hypothetically say a futures contract is trading at 1 Lakh and 2000 rs minimum deposit is required to take open position of that futures contract.

If Trade goes against one favor and then one needs to keep replenishing the minimum margin requirement of 2% to have that position open.

 

[amanbhati]

thanks a lot sir.....
a great forum for beginners
:clap::clap::clap::clap::clap::clap::clap::clap:

 

[DSM]

Amanbhati,

Just some friendly advise :

You have mentioned that you are a beginner, and your questions are about leverage, margin etc. An analogy would be of a driver who having got his new driving license, is asking about torque, racing circuits and race cars.... ideally, you should be focussing on discipline, rules, strategy, capital management etc. etc.

There are a lot many good thread on these subjects. Suggest do take some time to read up on these.

Good luck.

thanks a lot sir.....
a great forum for beginners
:clap::clap::clap::clap::clap::clap::clap::clap:

 

[shirajroz]

Amanbhati

In simple terms : Margin is the deposit you keep. Leverage is what you get to transact in return.

E.g To buy BankNifty Futures of 25 lot size @ 17,680, you will need a margin (deposit with the broker) of approx. 35,500 to carry fw. a trade overnight. While the actual value of the trade is 25*17,680 = 442,000.

Leverage is the exposure/power/advantage that you get. In the above case, 442,000 minus 35,500 is the leverage i.e 406,500

The ratio of leverage or exposure would be 442,000/35,500 i.e 12.45

Originally Posted by jaganKris:
2x leverage means - two times.
Say you have 10,000 rs in your account.
You can day trade - take positions (long or short) 20,000rs max limit.

2% Margin means - Hypothetically say a futures contract is trading at 1 Lakh and 2000 rs minimum deposit is required to take open position of that futures contract.

If Trade goes against one favor and then one needs to keep replenishing the minimum margin requirement of 2% to have that position open.

The Most LUCID explanation :thumb:

 

[James Martin]

Leverage is how much money/stock value you get to control out of your puny initial investments. for example, if your leverage is 1:100, that means you get to control USD100,000.00 worth of currency/stock for an initial investment of only USD1000.00 .

Margin is the initial investment you use to control your USD100,000.00 (in other words, the USD1000.00 is your margin).

Margin call is when your position has moved against you and the amount that you are currenty losing has reached whatever balance in your forex account.

 

[NJ23]

Leverage as it's used in Financial Analysis refers to borrowed funds in excess of your Equity. What's the value of your balance sheet is the amount of total assets you control. The assets can be financed by either using the funds that you have i.e. your equity or in addition to that by borrowing funds from someone to facilitate the purchase/control of assets(Assets = Liabilities + Owner's Equity). Operating and Financial Leverage are two forms of leverage. Operating leverage is calculated by dividing fixed costs by your operating income(which is your revenues minus your operating costs), and Financial leverage is the debt to equity ratio. The benefit of leverage os that you can control more assets thereby increasing revenue by not raising aditional equity.

The same concept applies in trading account.
In margin account, your broker provides you an excess cash to trade for a % interest charges on that amount(Rare in India, I guess IB offers it). Or you can add leverage to your account by trading futures/options which would require you to put a small amount than what would be required to purchase the total assets as explained above.