The Difference Between Margin Trading and Firm Trading

2023-05-31
Summary:

Foreign exchange margin trading and foreign exchange firm trading are currently the two most common methods of foreign exchange investment and financial management.

Foreign exchange margin trading and foreign exchange firm trading are currently the two most common foreign exchange investment and financial management methods in China. Many investors who are not familiar with the foreign exchange market are unaware of the difference between the two and do not know which trading method to choose. Below, we will introduce the difference between foreign exchange margin trading and firm trading to help investors understand how to choose between foreign exchange margin trading and firm trading.

Average Daily Trading Volume

The difference between foreign exchange margin and the real offer mainly lies in the account opening method and trading characteristics:

1. Real foreign exchange transactions

To open a foreign exchange firm transaction account, you need to apply at the bank counter, purchase foreign exchange and deposit it into the account, sign a foreign exchange transaction agreement with the bank, apply for online banking, and then log in to the bank website and use your personal computer at home to enter online banking for transactions. Usually, you open an account for transactions at a bank, such as China Merchants Bank or the Industrial and Commercial Bank of China. The biggest characteristic of foreign exchange firm trading is that the risk and return are relatively small. What are the foreign exchange margin trading platforms? The transaction fee (spread) is slightly higher, usually between 10 and 30 points. If operated well, the annual revenue is generally between 5% and 10%. Funds that are too small may have limited returns.


2. Foreign exchange margin trading

Foreign exchange margin trading is usually conducted through the internet, usually through domestic foreign exchange agents or directly applying for account opening on foreign company websites, and then depositing the funds into the trading account for trading. The biggest characteristic of foreign exchange margin trading is its high risk and high return. Foreign exchange margin trading is a leveraged model, with a maximum leverage of up to 400 times. If an investor does not have $100, under leverage, it is equivalent to trading at most $40000, greatly increasing the investor's return, but the corresponding risk will also increase exponentially. It is more suitable for investors with a certain understanding of the foreign exchange market to trade.


The difference between the two is:

1. The required principal is different, and the actual transaction requires a relatively large amount of principal, while foreign exchange margin trading generally only requires a small amount of funds.


2. The return-to-risk ratio is different; compared to margin trading, foreign exchange firm trading has less risk and is suitable for most people to invest in.


3. There are different policy tendencies, and currently policies support firm trading while margin trading is strictly illegal.


4. The trading channels are different, and foreign exchange firm trading is mainly completed through the banking system, while margin trading needs to be mediated by market traders, which carries certain system risks.


How do I choose between foreign exchange margin and firm trading? From the above introduction, it is not difficult to see that if investors have a large principal and pursue stable returns, they can choose foreign exchange firm trading. If investors have a good understanding of the foreign exchange market, have relatively small initial funds, and bear certain risks, they can choose foreign exchange margin trading.

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