Margin Level indicates how “healthy” your trading account is. It is the ratio of your Equity to the Used Margin of your open positions, indicated as a percentage. As a formula, Margin Level looks like this: (Equity/Used Margin) X 100.
How to Calculate Margin Level
Margin Level = (Equity / Used Margin) x 100%If you don’t have any trades open, your Margin Level will be ZERO.Margin Level is very important. Forex brokers use margin levels to determine whether you can open additional positions.
Different brokers set different Margin Level limits, but most brokers set this limit at 100%.
#1: Open a long USD/JPY position with 1 mini lot
Step 1: Calculate Required Margin
Required Margin = Notional Value x Margin Requirement
$400 = $10,000 x .04Assuming your trading account is denominated in USD, since the Margin Requirement is 4%, the Required Margin will be $400.
Step 2: Calculate Used Margin
we just have a single position open, the Used Margin will be the same as Required Margin.
Step 3: Calculate Equity
assume that the price has moved slightly in your favor and your position is now trading at breakeven.
This means that your Floating P/L is $0.
Let’s calculate the Equity:
Equity = Account Balance + Floating Profits (or Losses)
$1,000 = $1,000 + $0The Equity in your account is now $1,000.
Step 4: Calculate Margin Level
Margin Level = (Equity / Used Margin) x 100%
250% = ($1,000 / $400) x 100%
If the Margin Level is 100% or less, most trading platforms will not allow you to open new trades.
Conclusion
You should now have an answer to the original question of ‘what is margin in Forex trading?’, as well as understanding how it is calculated and some of its associated terms – such as Forex margin level.
CFD margins are a hotly debated topic. Some traders argue that too much margin is very dangerous and it is easy to see why. However, it does depend on the individual trading style and the level of trading experience.
Trading on margin can be a profitable approach to Forex and CFD trading, however, it is crucial that you understand all the associated risks. If you choose to trade using Forex margin, you must ensure you understand exactly how your account operates. Be sure to read the margin agreement between you and your selected broker carefully, if something is not clear to you, you should ask your broker to clarify.
Website : www.forextrade1.com
Twitter : www.twitter.com/forextrade11
Telegram : telegram.me/ftrade1
Facebook : www.facebook.com/Forextrade01
Instagram : www.instagram.com/forextrade1
YouTube : www.youtube.com/ForexTrade1
Skype : forextrade01@outlook.com
Email ID : info.forextrade1@gmail.com
Discord : https://discord.gg/vEk98ZvrHP
