Margin, also referred to as an advance payment, enables traders to use a portion of their funds to establish positions based on the principle of leveraged investment. It serves as collateral to maintain a trading position. Leverage typically ranges from 20 to 500 times in the market, allowing investors to actively trade with high leverage. However, it's important to note that while the margin system can amplify profits, it also increases trading risks.
For example, Mr. Zhao who wants to execute a trade worth USD100,000 today. With margin trading and assuming a leverage ratio of 500:1, Mr. Zhao only needs a capital of USD200 to open a new order for this trade (USD100,000/500 = USD200). In other words, with capital magnified by 500 times, an investment of USD10,000 can facilitate a trade of USD5 million.