The Concept of Margin Trading

HY Markets offers direct access to the worlds international financial markets. A key advantage to HY Markets products offering is that all transactions are traded on margin. This means that for a small amount of money, investors can obtain exposure to a much larger trading position.

Margin is a good faith deposit giving the investor the right to buy or sell the value of the underlying contract of an investment product. For instance, with a deposit of $1000 an investor can gain exposure to $100,000 worth of an investment product.

Here is a simple example:

An investor wants to buy a property with a value of $1,000,000, however he has only $10,000 cash available. He puts this down as a deposit on the property and borrows the rest from the bank. Therefore, in effect the client owns $10,000, or 1% of the property and the bank 99%. One year later this property is worth $1,010,000. If the customer had paid the total purchase price from his own assets, he would have made a 1% gain in his investment. But, since he had only put in $10,000, he has, in effect doubled his money. His investment of $10,000 in the property which by now has risen in value by $10,000 means he has achieved a 100% profit.

This same concept is applied to investing on margin via HY Markets. The client lays down a deposit in good faith, and HY Markets, in effect lends the client the money to trade with.

Why would HY Markets do this

HY Markets conducts this type of transaction for the same reason bank does. When it finances you with this money, it applies certain minimal fees which give it an income. Furthermore, as HY Markets is a large financial institution, it has spare capital in which to offer its clients.

It is important to note that all transactions with HY Markets are done on a margin basis. This is a key advantage when trading with HY Markets.

With HY Markets you can only loose the amount of capital you have on margin. This means that there is no negative margin. This is a huge benefit to investors as you get all the upside of margin trading with a limited downside.

What are the advantages of trading on margin

The principal advantage of trading on margin is that the client can have a far greater exposure to the market, and hence greater profit potential than would otherwise be available. Trading in these larger volumes, in turn allows investors to take full advantage of small price movements.

For example, a 3% move in the clients favor of the underlying value of the Crude Oil contract offered by HY Markets would result in an approximate profit of 60% of equity. This application is c
called leveraging (or gearing) and is the key to trading these volatile markets.

Initial margin requirements:

At the time of any trading decision made to buy or sell, the customer must have sufficient margin funds as collateral for that purchase or sale in his account. The minimum initial margin for one contract is $1000 for most products but some require up to $3500. If the customer does not have the required amount of funds in his account at the time of the trade, he will be unable to take this position.

HY Markets Trade Center platform automatically lets you know the margin requirements before you make the trades so you can just decide on whether or not to place the trade

Examples of a margin transaction

Client A has $4000 in his account. He wishes to trade the Crude Oil product offered by HY Markets. The margin requirement of Crude is $3500 per lot. After much research he decides the price of Crude oil is ready to go up. He buys one lot of crude at $58.00. The transaction is as follows:

The accounting in this transaction works in this way: the client paid original margin of $3500 and an additional $500 of maintenance margin. That totals $4000. The customer withdrew $1500 on Day 6 and had a total equity of $4500 after the closing transaction. That totals $6000. The customer therefore received $2000 ($6000 - $4000) for his efforts.

We can see that throughout this transaction any and only funds in excess of the required minimum margin level were free and available for withdrawal or other use. This is an important feature of margin trading.

A quicker way to calculate the customers profit is to compare the opening and closing prices of the Crude Oil contract. The customer bought Crude at a price of $58.00 and closed this contract at $59.00. The difference between the buying and the selling price is $1, or a gain of 100 points. At $20 per point, that is $2000 he has made.