2.3 - Meeting Multipliers and Margin

Buying-power and possessing the large amount of investment needed to make that tiny percentage gain rewarding – is a major factor in trading.

As a basic example – A 2% gain on a trade worth £100 will get you £2 – No calculator required… yet. Now, gaining just 50 pips (around 0.35%) on a GBP USD trade which opened at 1.3553 and is worth £100,000 nets a gain of $500 – just over £350 in value. This shows just a small change either up or down in the higher valued trade markets will cause substantial gains or losses.

For this reason, brokers provide something called leverage. This allows investors to use their broker’s buying power to trade a much larger value than they could with their own funding. Because these tools are multiplying potential gains and losses, they are often referred to as Multipliers.

For example, with Pipster, you can place a trade for £100 using a 2X multiplier. This means that you would only need to cover £50 of the trade with your broker covering the other half. With a 3X multiplier, you cover a 3rd of the cost, with your broker making up the rest – and so on as long as you change the multiplier value.

It’s also very important to remember your account must contain adequate funding to cover the margin being used for leveraged trades. Once a trade is at a loss, equal to or greater than the total funding in the account, the trade is closed-out automatically to ensure losses don’t exceed your balance.

A strong word of caution here. The bigger the multiplier, the bigger the risk. Understanding your exposure – your potential risk – and trading responsibly is the key to long term growth. Learn your limits and use leverage very carefully!

It’s also important, of course, to get a feel for how the market might go. We’re going to be discussing market sentiment in the final part of this chapter or click here to return to our learning page.

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