How to calculate margin in forex

1. How to calculate margin in forex Forex is one of the best currency markets in the world. Forex is a platform where a person can be rich within a very short time if he can internalize the strategies of forex trading. The forex brokers give a trader the opportunity to trade in much higher amount than the trader actually has by the help of leverage and margin. Therefore, to trade in forex the ideas of what is margin, what is leverage, what is free margin in forex, what is equity in forex, forex margin level percentages etc. are vital. This article attempts to explain these key ideas so that a trader who is new to Fake Forex Brokers Listfaces no difficulty in trading. Margin is one of the most attractive tools of trading in forex market. If you are a beginner in forex trading, you must have the knowledge about margin. The amount of money that a trader needs to deposit in his account to open a trading position is called margin. That means it is the required account balance of the trader. Margin is called the collateral money for the broker because if a trader loses money in trading, the broker can charge money from here. Trading on margin means trading through the borrowed money from the broker. The broker, depending on the margin, allows certain percentage of margin to the trader which increases the trading ability of the trader to a great extent. The amount of money that the broker lends depends on the leverage ratio that is used for that account of the trader. For example, a trader opened an account of $100. If the broker gets 50:1 leverage for this account, he will be able to open position worth $5000. Here the required margin of the trader is only 2%. For better understanding of the trader another example is provided here. Suppose, a trader wants to open a buying or selling position for EUR/USD currency pair of worth $100000. Without leverage or margin trading he will need to deposit $100000 in his account. But with a leverage of 50:1, or 2% margin requirement, he only needs to deposit $2000. The remaining 98% is provided by the broker. However, the trader should be cautious about the fact that trading on margin increases both profits and losses. Sometimes the trader completely loses his deposit. So he should keep in mind the risk probability of such trading. The difference between margin and leverage in forex is also vital to the understanding of Top Forex Brokers. Both are intertwined concepts. Margin is the deposited amount in the account while leverage is the ratio at which the trader is able to trade. Margin is the actual amount of the trader’s fund. On the other hand, leverage is the enhancement in the fund. For example, a trader has deposited $100 in his account. If he gets 30:1 leverage he will be able to open a position worth $3000. So to

2. trade $3000, the trader needs 3.3% margin and 30:1 leverage. Leverage is closely associated with margin as margin tells what percentage of deposit is required to open a trade. For a 30:1 leverage ratio, the trader needs 3.3% margin, for a 20:1 leverage, the trader needs 5% margin. Now as the idea of margin is clear, now it is time to move toward the question- what is free margin in forex. Free marginis the amount that is available in a trader’s account and which can be used to open new positions. It is calculated as below: Free margin= Equity - used margin. Now, to understand this equation, what is equity in forex must be clear. Equity is the amount of money in a trader’s account plus any profit or the account balance of the trader minus the loss from open positions. However, if the trader does not have any open position, his equity is the same amount as his account balance. In short, equity is the sum of actual account balance and the unrealized profit or loss of open positions. The actual equity can be known when all the open positions are closed. That means, once the open positions are closed, the amount of profit or loss can be known. Then the equity will be calculated by adding the profit to the account balance or subtracting the loss from the account balance. Now let’s get back tofree margin. The idea of free margin is explained through an example here. Let’s assume that a trader has opened a trading account of $1000 with a margin of 5%. If he wants to open a position worth $8000 then his margin will be $400 (5% of 8000), free margin will be $600 (equity - used margin). Margin level is also an important concept while understanding the concepts of margin and free margin. Margin level helps the broker to determine whether a trader can open new positions or not. If the margin level is 0%, then the broker cannot open new positions. However, forex margin level percentage is calculated as follows: Margin level = (Equity/Used margin) X 100. Trading on margin is an effective strategy of trading in the Forex Broker Reviews. If a trader doesn’t have enough money, he can take the benefits of margin and free margin to trade effectively as these magnify the trader’s fund. As there are some benefits of margin, likewise there are also some negative sides of margin. For example, while margin can magnify the profit, it can also magnify the loss. As a result, a trader may lose all his money and become bankrupt. So it is very important to be careful about this. However, if the trader knows all the pros and cons of trading on margin, it is unlikely that he will lose.