Avoiding the Pitfalls of Margin Trading

Trading with margin can greatly enhance your potential profits but also carries with it big risks. Just mention the words “margin call” to any experienced trader and watch them shudder. However, there are ways that you can avoid the pitfalls of margin trading.

    • Understand the rules of your broker before availing of leverage. You should familiarize yourself with guidelines like the minimum margin you need to maintain in your trading account and the initial margin required before you can purchase a security. This will help you avoid margin calls since you can monitor your account to prevent it from falling below the required levels.
    • Always have some extra cash on hand. Losses are inevitable in any type of securities trading but they can deplete your account and result in margin calls. Having cash readily accessible in a high-yield savings account that allows you to make online transfers to your account as necessary can help you avoid margin calls and hedge your risks by purchasing another position.



  • Never speculate when trading with margin. Keep in mind that trading with margin represents a big risk as well as an opportunity to increase your profits. So treat it with respect and trade only according to your trading plan.
  • Always trade with discipline. One of the biggest risks that forex traders face is letting their emotions take over their trading, resulting in bad decisions and trading losses. So make sure that you stick to the trading strategy that you have developed, no matter what happens. Keep in mind that the currency markets can be very volatile so you should learn to take the long view and accept short-term losses as long as you make a profit from your overall trading.
  • Be aware of upcoming developments that could affect the value of the currency you’re trading. It is common for currencies to experience short-term volatility when data releases are announced. So you should keep an economic calendar handy so you’ll know when these releases are set to come out so that you can prepare for them. In addition, you should also stay on top of news coming out of the country whose currency you are trading so you won’t be caught off guard in case there is political or economic instability that can affect the currency’s value.


Avoiding the Pitfalls of Margin Trading



Reference:  Mr. Jorge from MTrading Malaysia contributed in this posted

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