What is Margin?
Margin is the amount of money you have to deposit on your trading platform to be able to order and maintain your position in the Forex market. Margin is used as collateral to ensure that the broker can cover potential losses from your positions. Your Forex trading losses cannot exceed your account margin. For example, if you top up your trading account with $ 1,000 and have not made any trades, your margin is $ 1,000.
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Margin Requirement
Margin requirement is the amount of margin required to open a trade, expressed as a percentage (٪) of the “actual trade” size you want to open. For example, it is said that the margin margin is 1%, 2%, 3% or 10%, which means that you must have, for example, 1% of the total actual trading volume as a margin in your account.
Required Margin
The required margin is the money that is set aside and “locked” when opening a trade. In fact, this is what we call the margin for short. For example, if you open a $ 10,000 (mini-lot) position that requires a 2% margin (or 50: 1 margin), $ 200 will be “locked” during the trade. This $ 200 cannot be used to open other positions as long as the deal is open. Upon closing the deal, this $ 200 margin will be “released”.
Other names:
- Margin of entry
- Primary margin
- Primary Enter Margin
- Maintenance required margin (MMR)
Used Margin
The margin used is the minimum amount that must be retained in a margin account. This is the total amount of margin currently used to maintain open trades.
Other names:
- Margin used
- Maintenance required margin (MMR)
- “Total Margin”
Calculation method:
Used margin is the required margin for all open positions.
Margin used = the sum of the individual margins required for each open trade
Margin calculation formula (for each transaction)
If the base currency is your account currency:
Margin required = actual transaction value x margin requirement
If the base currency is different from your account currency:
Margin required = actual transaction value x Margin requirement x Currency conversion rate between base currency and account currency
Free Margin
Free margin is money that is not “locked” due to an open trade and can be used to open new trades. When this value is zero or less, the margin alert is activated and additional positions cannot be opened. In other words, this is the margin that you can use now to open new trades.
Other names:
- Free Margin
- Available margin
- Usable margin
- Margin usable for maintenance
- “Available for transaction”
Calculation method:
Free Margin = Actual Inventory – Used Margin
What is the margin level? (Margin Level)
Margin level or margin level is the ratio between the actual account balance and the margin used and is expressed as a percentage. For example, if your account equity is $ 5,000 and the margin used is $ 1,000, the margin margin is 500 percent.
Other names:
- Margin index
Calculation method:
Margin level = (account balance / margin used) * 100%
What is Margin Call?
Margin Cal occurs when you have passed the Margin Cal level but are still above the Stop Out level.
Margin Call is a warning, telling you that your account is not doing well and that your open positions are close to closing at market prices.
You are still allowed to keep your current trades open, but you cannot open new positions. In fact, it is a warning to increase the account margin or in other words, to charge the account. Be very careful in this case because in most cases it does not lead to saving the account. A trader who does not know what a margin is or does not follow it properly is more likely to encounter a margin call.
What is the margin margin level? (Margin Call Level)
Call margin level is the specified level of percentage that if your margin level is equal to or less than that, you can no longer open a new trade. Your broker determines the margin margin level. This percentage varies from broker to broker, but is typically around 50%.
For example, if the call margin level is 50%, it means that if your margin level reaches 50%, you can not open any new positions (trades). At this point, your account is under the so-called margin margin.
Most traders may think that this means that their trade (s) may be closed, which is not true. The margin margin level is just a warning.
Other names:
- Minimum required margin
- Minimum margin requirement
Calculation method:
Call Margin Level = A specific percentage of the Level Margin determined by the broker
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What is a leverage? (Leverage)
In previous articles we talked in more detail about what leverage is in Forex . A tool that allows you to trade larger amounts with a much smaller deposit amount in your account is called a leverage . As we explained in previous lessons, leverage is a type of credit given to you by a broker so that you can trade higher volumes than your stock. For example, when you use a 1: 100 leverage, it means you can open trades up to 100 times your account margin.
The relationship between the required margin and the leverage is the opposite relationship. The higher the amount of leverage used, the lower the required margin margin.
Unrealized P / L
Unrealized P / L is the current Profit / Loss of the account, which is the sum of profit or loss during your open trades. Example: If you have two open trades, one of which is currently $ 120 in profit and the other $ 50 in loss, your unsettled P / L will be $ 70.
Also called floating P / L.
Balance Balance
The balance is the total cash you have in your trading account. If you have an open trade, and even if you have a floating profit (or loss), your balance is still the same as before the opening of the position. But as soon as you close the deal, the profit (or loss) is added to or deducted from the balance, which will be your new balance. In other words, the balance sheet shows your account balance after closing past trades and is not affected by current open trades.
Other names:
- Balance
- cash
Real or Equity
Real or equity balance, your account balance plus floating profit or loss of all your open positions. In other words, it shows the “instant” value of your account.
Other names:
- Account balance
- net asset value
- Asset balance
Calculation method:
If you have an open position:
Equity = Balance + Floating Profit (or Loss)
If you do not have an open transaction:
Equity = balance
Stop August
A stopout, which occurs after a breakout level is broken, is when your open positions close automatically to prevent the account balance from becoming negative. By doing so, the broker is actually avoiding losses on your trades.
Stop Out Level
The stop-out level is a specific percentage level that if your margin level is equal to or less than that, your broker will automatically start closing your trades until the margin level exceeds the stop-out level. This percentage is determined by the broker and varies from broker to broker.
For example, suppose the stop-out level is 20%.
This means that if the margin level falls below 20%, the stop-out will be done automatically and the trade with the most losses will be closed automatically.
This process is repeated until the margin level reaches above 20%.
Other names:
- Closing margin
- Margin Close August
- Margin Close Out (MCO)
- Minimum required margin
Calculation method:
Stopout level = a certain level of margin determined by the broker
Conclusion:
These are some of the most commonly used Forex terms used on MetaTrader 4, MetaTrader 5 and other trading platforms. Familiarity with these definitions is essential and will help you manage risk and capital.
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