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Forex Brokers: Margin Accounts

March 6, 2013 0 Comments

To understand what a margin account is, you should focus on the word “margin”. In finance, margin refers to an arrangement that enables you to borrow money from your broker to fund your investment.

That is one way to look at it. In general though, a margin account provides flexible trading with your broker. This means that you can immediately buy shares that you normally could not afford. A margin account is therefore an investment account with total shares that cost more than your actual investment.

The benefits of a margin account – One obvious benefit of a margin account is the provision of being able to buy more shares. This is because you can easily borrow money from your brokerage with the margin account. The margin account also beats a regular account in terms of the settling period of a day trade. You need to wait three days to spend the money you earn from a sale.

With the margin account, there is no such settling period. Also, because it is easy for you to borrow money from your broker, you can use that money to invest in shares that are selling for low prices. You can eventually sell those shares at higher prices.

The problem with a margin account – Even if a margin account has many benefits, it does not come without a disadvantage. Be careful about your investments or you could end up losing more than the cash you have shelled out.

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