Wednesday, September 16, 2015

the story from the beginning

You have purchased a car from an agency of cars at a price of $ 10,000; the agency was deducted $ 1,000 from your as margin and remains in your account the amount of $ 2,000 margin available.
You now have a car in your name you can sell in the market... and will be keen to make a profit selling it at a price higher than $ 10,000.
Now go to the market and looking for a buyer for the car at a higher price of $ 10,000...ok?
No not like that...!!
We will assume that the method of buying and selling cars in your country is in a public auction in which all who is interested in buying and selling shares and where the price of cars varies according to supply and demand.
If the number of people wanting to buy cars has increased the price of cars will increase and will continue to rise as long as there are a greater number of buyers.
If the number wishing to sell cars increased over the number of buyers it will drop the price of cars and will continue to fall as long as there are a greater number of sellers.
Now you have a car you would like to sell...
Will go to this market and will monitor the price of the car in the market, which is determined by the supply and demand in the market, if your car is desirable and there are plenty of people willing to buy it, the price will increase from $ 10,000 to $ 11,000, for example, and if there is more demand for the car the price could rise to $ 12,000.
Here you know that all you have to pay to the agency is the amount of $ 10,000; a price that you bought the car with, if the car is sold at the current market price of $ 12,000  you will be a winner no doubt.
So when the price of the car $ 12,000 in the market will order to sell the agency to sell the car in your name with this price, they will sell the car at a price of $ 12,000, and will deduce $ 10,000 full value of the car, and will return your deposit which taken as margin and will add profit of $ 2,000 to your account to have a ($ 12,000 - $ 10,000) and will become your account now has $ 5,000 ($ 3,000 original account +2000 US dollars profit from the deal).
You can withdraw this amount or withdraw part of it, or you can do it again.
In all cases you will sleep happy tonight...!!
Thus by deducting $ 1,000 from your account you got a $ 2,000 profit, an increase of 200% of the capital... Note that the capital was nothing more than a margin has been returned after completion of the deal...!!
What if you went to the market and found that the number of sellers more than the number of buyers? And that there is a lot of wishing to buy a car
the price of the car will fall from $ 10,000 to $ 9,500, for example
This means that if you sold the car at the current market, you will lose $ 500.
Where if you ordered the agency to sell the car when the market price became $ 9,500 you will you'll get $ 9,500 and an amount of $ 500 will be deducted from your account to complete the full value of the car, and the deposit you paid as a margin will be returned  and thus your account = $ 2,500 (3000 $ original account - $ 500 loss).
Of course you do not like this...
So you wait, hoping to increase demand for the car and back to the high price.
But what if the demand not increased, but increased the offer?!!
The price of your car will drop more than $ 9,500 to $ 9,000.
Here if you sold the car at the current price you will lose $ 1,000 from your account and will remain in your account $ 2,000.
And you wait more...
But the price is still in decline, for example, to reach $ 8,000.
What will happen here?
You can wait more hoping the price will rise again.
But the agency will not wait a single moment...!!
They are watching the price of cars in the market as you watched it.
They will not allow that the price falls by more than that...
Because the amount that you have as available margin = $ 2,000, which as you learned the maximum amount you can afford to lose in this deal.
When the price of cars in the market reaches $ 8,000 if you decide to sell your car at this price the company will be able to complete the rest of the price of the car and then deduce from your existing account, it can deduct $ 2,000 from the available margin.
But if the price of cars has become less than $ 8,000 means that your loss will be more than $ 2,000 then decided to sell the car then the agency will not be able to complete the rest of the value of the car from your account where there is no margin available only $ 2,000 .Here the agency will bear part of the loss.
And this is not permitted at all...!!
All that you can lose is the amount in your available margin.
But what will happen when the market price of the car reaches $ 8,000?
It will come from the agency the so-called Margin Call.
It is a warning from the company that prompts you to either sell the car immediately or adding more money to the available margin you have.
What is this?
We mean that the agency monitors the price of cars all the time and with any change in the price of cars in the market they assume that you sell the car.
And they always keen on that only you who bear the full loss and not them.
Since they do not share your profit, they do not share your loss.
So when it becomes: the current market price - purchase price =the available margin you will see the margin call
So what can you do then?
you have two choices:
Either that the agency sell the car at this price $ 8,000, and so the difference is deducted from your available margin and it will deduce $ 2,000 and had thus completed the full value of the car ($ 8,000 current market price +$ 2,000 deducted from your account), and so your deposit margin becomes in your account is $ 1,000 ($ 3,000 original account $ --2,000 sum deducted)
And your loss in the deal is the $ 2,000 you fully incurred.
If you do not want to sell at this price, and you want to wait any longer perhaps the price rise back, you have to add more money to the available margin you have.
If we assume that you added $ 1,000 to the margin available will become available margin = $ 3,000
Even if the price of cars fell to $ 7,000 the agency will be able to complete the full value of the car in case of a sale at the current price.
But what if the car price reaches $ 8,000, and I received a margin call did not sell or add more money to my account? What will happen?
The agency will sell the car which is in your name at a price of $ 8,000 will not wait for your order.
They will do this by themselves.
Avoiding that the price of the car will fall more than $ 8,000
as we have said it will not allow you to lose more than the amount in the margin you have available.
The moment at which the agency will sell the car fearing that they can bear the loss is called Auto Close.
This behavior is just with no doubt...
If you understand the previous example then you have understood the underlying principle of the trading by margin basis.
The system of margin trading is an opportunity for many people to enable them to trade more than the size of their capital several times while retaining the full profit as if they actually have the commodity and therefore can get enormous profits and which can not be obtained in any other type of investment.
Many are the people who have to enter effectively in the business world but the biggest problem is that they do not have enough capital, which enables them to work.
In Marginal trading system the last thing you care about is the capital!!
You can understand that the marginal trading system like a temporary loan from the institution you are dealing with that the institution lend you the commodity that you want to trade in by the payment of a fraction of its value as a token refundable deposit, then you return the rest of the value of the commodity  after sale and they don’t  share you the profit or loss.
To ensure that you will not take this commodity and run away, the commodity remains at the company reserved in your name, where you can sell it at a price that you see fit, whether profit or loss on condition that the value of the loss is not more than the amount in your account at the institution which will be used to cover the loss if it happened to recover the full value of the item without deficiency and in all conditions.

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