First Lesson
General principles of the marginal system
An overview of the margin system
What is meant to work on a margin ?
In order to understand the mechanism of the margin system easily, we will explain it through a concrete example that will accompany us all the time.
Suppose you wanted to trade cars by buying a car and then selling it on the market to a buyer at a higher price.
You go to one of the big car dealerships and choose one of the cars you think you'll find on the market. Suppose the car's price is $ 10,000.
All you have to do is provide this amount and pay it to the car dealership and you are the owner of a car worth $ 10,000 .. Since the purpose of buying the car is to trade it you go to the market and offer your car hoping to sell at a price higher than the price you bought it.
Now suppose that when you went to the market you found that the demand for the quality of your car is high and that there are a lot of people would like to buy .. when you will display your car at the price of $ 12,000, for example ..
If you sell it at this price, your net profit from trading this car will be $ 2000. But what if you go to the market and find that the demand for your vehicle is poor and that no one wants to buy it for $ 10,000 and that the maximum price you can buy for your car is $ 8000?
What does that mean?
Simply means that if you sell it at this price, your loss in trading this car will be $ 2000. It's a clear process that many do their work every day. You can do that too.
But hey .. !!
In order to carry out the previous operation, you need to have a property of $ 10,000 from the beginning so that you can buy the car with it .. This is your capital in trading.
If you do not own this amount, you will not be able to buy the car and therefore you will not be able to sell it in the market. This means that in order to be able to trade cars you must be the owner of the entire value of the car first ..
Is there a way to do this process without having $ 10,000?
Yes, there is a way. It is the margin trading method
How so?
"If you want to buy a car to trade, you do not need to pay me $ 10,000. All you need is to pay me a $ 1,000 deposit and I will book the car in your name so that you have the opportunity to sell it on the market. Then restores to me the rest of their value. " This is a great opportunity, no doubt.
Note that we said here "booking" the car in your name .. that the car agency will not give you the car actually, but you will book it in your name and make it at your disposal for the purpose of trading so that you can sell at the price you like as if you already own.
but why do not you give me the car ?
Because you did not pay only ten worth only .. If the car gave you may take it and do not return .. !!
So they do not give you the car but you book it in your name but keep it ..
So how can I trade it?
Well, when you know that you have a car reserved for your name and that you can sell it at the price you like, you can now go to the market and find a buyer at a price higher than the price of the car.
To say that you found in the market a buyer of the car at $ 12000 then the car agency will order the buyer to sell the car in your name reserved for $ 12000.
The buyer will pay $ 12,000 and receive the car ..
The car dealership will deduct the car value of $ 10,000 and will refund your $ 1,000 deposit plus the full $ 2000 bonus. Since you do not intend to only trade the car, it will not differentiate with you to get the car actually or remain with the car agency.
The important thing is that you have the opportunity to trade a commodity worth ten times the amount you paid and got the full profit as if you already own the commodity.
In this way, the car dealership ensures that you get the full value of the car and you also get the full profit.
And so everyone is happy .. !!
In the previous example, once you paid $ 1000, you could get a $ 2000 profit, or 200% of your paid capital, just because you found a company that would allow you to pay a fraction of the value of the commodity you wish to trade.
It's a fantastic opportunity, is not it? But how did that happen?
This is because the owner of the car dealership has given you the opportunity to double the leverage of your paid capital, which is $ 1000 to ten times that of $ 10,000, thus giving you the opportunity to trade a commodity whose actual value is ten times greater than the value of your paid capital.
This is called double capital or Leverage Leverage.
When you get the possibility of doubling your capital ten times the meaning of that you are paying for your investment - for an amount you have the opportunity to trade a commodity worth more than ten times the value of your capital.
When you get the possibility of multiplying your capital by one hundred times that means that in return for paying a sum you will have the opportunity to trade a commodity worth more than one hundred times the value of your capital.
You will get a full profit as if you actually own the item.
If you apply this to the previous example, for your payment of $ 10,000 you will have the opportunity to trade in cars worth $ 100,000 or ten cars once. If you win on each car $ 2000 means that your profit on the deal is complete (2000 * 10 = $ 20,000 ) You will receive it in full and all that profit for your investment of $ 10000 as a refundable deposit will return to you in the end .. !!
really ?
Yes reasonable .. This is happening hundreds of millions a day in the financial markets and margin trading system.
Do you know now how to make millions?
To go back to our previous example:
At the beginning we mentioned the normal trading method and was done as follows:
You made a purchase by paying for the entire value of the car.
You go to the market and display your item for sale.
I sold.
If you sell your car at a price higher than the purchase price you will be profitable, and if you sell it at a price lower than the purchase price you will be a loser.
When you trade marginally, this is what happened:
I bought from a car dealership that multiplied your capital tenfold by paying $ 1,000 as a refundable deposit and I was a temporary owner of the car until it was sold and repaid.
When you pay $ 1000, the dealership allows you to trade a $ 10,000 car, which allows you to trade ten times as much as your capital. I went to the market and offered your item temporarily for sale. You sell by ordering the car dealership to temporarily sell the car you own in your name to the buyer you found on the market at the price you set.
The car agency carried out the order and sold the car to the buyer, and then deducted the original value - which sold you the car - $ 10,000 and gave you the rest of the net profit and returned to you the deposit you paid at the outset.
Note here ..
That when the auto agency multiplied your capital ten times, it did so to give you the opportunity to trade the value of a car (commodity) more than 10 times the value of what you paid to pay the rest of the value of the car after you sell, that is when you paid $ 1000 and became owner For a temporary car, you owe the car dealership $ 10,000 to pay the full amount, as the $ 1,000 you paid is just a refund when you pay.
If you order the car dealership to sell the car at $ 12,000, it will execute the order and will deduct the $ 10,000 value of the car and will return to you the deposit you paid first plus $ 2000 is your profit in trading.
But what if I sold the car at a price below the purchase price?
What if you sold it for $ 8,000, for example? Then you will be required to complete the value of the car from your own pocket, which means you will be required to pay $ 2000 until you complete the value of the car and then refund the deposit you paid in advance.
Just as the car dealership does not share the profit, it does not share the loss.
Whether you win or lose, it does not ask you to pay the full value of the car after selling, if ordered to sell the car at a price higher than the purchase price will be implemented and will deduct the value of the car and then refund your deposit plus the full profit.
If you order them to sell the car less than the purchase price, the order will also be implemented and you will have to pay from your own pocket to complete the value of the car in full, and that amount is your loss in this transaction.
In the previous example, when you sold the car for $ 8,000, you would have to add $ 2000 to your pocket to make $ 10,000 and pay it to the car dealership. You will be the loser, not the car dealership, and in all cases your pre-paid deposit will be refunded.
But why not fool the automotive agency?!
Well, when we started dealing with the auto dealership, which allowed us to double the capital tenfold, all we paid was $ 1,000. When we ordered the car dealership to sell the car for $ 12,000 - after we found a buyer at that price - the agency sold the car at the price we fixed The guarantors paid back the full profit.
So if we ordered the agency to sell the car at $ 8000, we would not add anything from our pocket, so the agency has $ 1,000, so we will make the car agency bear the loss.
So we will not pay anything ... we will run away .. !!
In order for this not to happen, dealing with the margin agency has a special system that we can summarize in one sentence:
You must deposit the maximum amount that can be lost in the deal in advance with the Car Agency.
How so?
In order for you to have the opportunity to trade margin system, which allows you to work in more than ten times your size, the car agency will require the following: to open an account with a deposit of $ 3,000, for example. This amount will be deposited in advance with the Car Agency.
In return, the auto dealership will double your leverage and allow you to trade a commodity in return for paying only ten dollars as a refund.
You will buy a car, since you only need to pay ten, and since the value of $ 10,000, you only need to pay $ 1,000 as a refund.
When you buy the car, the deposit will be deducted from your account, which will deduct $ 1000. We will call this margin used.
Your account will now have $ 2000 unused. We'll call it "margin available". This amount will be the maximum amount you can lose by the transaction.
So the car agency ensures that you are the one who will bear the loss if it occurs and not it, and you will not be afraid to run away because it has in your account the amount you can lose.
When the car dealership orders the car to sell for $ 12,000, the agency will order, sell the car, deduct $ 10,000 and pay back the full profit and add it to your account, bringing your account to $ 5000.
If you ordered the car dealership to sell the car at a price below the purchase price to transfer $ 8000, the car agency will execute the order and sell the car and then deduct $ 2000 from your account to complete the rest of the price of the car, and then return your deposit to your account and your account will have only $ 1000.
Did you know why this technique is called "margin trading"?
This is because trading and trading on the margin of profit and loss in trading a commodity without having to pay the full value, where the profit from the transaction is added to the account of stores and discounts the margin of loss from the account stores.
What do you also understand?
You understand that in any transaction you can not lose more than the amount in your account that allows you to trade margin.
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