what is buying on margin? Use an example to demonstrate how buying on margin enables currency traders to make large profits on small investments

buying on margin refers to an act of buying an asset for a portion of its worth and borrowing the rest from the broker or bank.

Let's say a company sells 100 shares at $10.

To buy it we use $500 of our money and borrow the rest $500 on buying margin.

a month later, the value of the shares jumped to $ 30.

this way, we made $2000 after returning the margin.

Answer Link

arbitraryfoxbase arbitraryfoxbase · Answer 2 · 2018-12-06T20:43:43+01:00

In simple terms, buying on margin means making a purchase, in this case, a given currency, for example, and paying a part of the price with your money, and borrowing the rest from the bank or the broker.

Imagine you have 100 Dollars and you want to buy 100 Euros on an imaginary rate of 1 Euro = 2 Dollars.

In this case you would need 200 Dollars to buy the 100 Euros. You already have a hundred, so you borrow the other 100 dollars you need from the broker.

Let's say in 2 months, the exchange rate is now 1 Euro = 4 Dollars. That means that the 100 Euros you purchased for 200 Dollars are now worth 400 Dollars, which means 200 Dollars profit after paying back the broker.

This is an exaggerated example of how currency traders can make profits taking advantage of buying on margin.