Margins, are not hard to understand, having understood what Leverage is, can easily help you comprehend the whole margin saga, that we hear about in the financial market.
If you are in control of $100 000 with a leverage of 100:1 (Leverage is always expressed in ratios), This means you will be having a specific amount of money in your account. It has already been calculated.
Your Acc: $100 000 / 100 = $1000, and thus you will be controlling $100 000 with only $1000 and that’s leverage.
So, in essence, your very own deposit is “Margin” – that’s what you give to access the leverage.
A margin is the total amount of money needed to open a position with your broker, this is said to be a “good faith deposit”.
This is needed to maintain your position, what happens is, your broker takes your $1000 (Margin Deposit) – collected together with everyone else’s margin deposit for shared use, to be able to place a trade within the interbank network.
A margin is commonly expressed in percentages, Margin requirements aren’t always the same, some forex brokers may require 0.25%, 0.5%, 1% or 2% margin.
UNDERSTANDING LEVERAGE AND MARGINS
- If your broker requires 5.00% Margin – Your Maximum Leverage is 20:1
- If your broker requires 3.00% Margin – Your Maximum Leverage is 33:1
- If your broker requires 2.00% Margin – Your Maximum Leverage is 50:1
- If your broker requires 1.00% Margin – Your Maximum Leverage is 100:1
- If your broker requires 0.50% Margin – Your Maximum Leverage is 200:1
- If your broker requires 0.25% Margin – Your Maximum Leverage is 400:1
Types of Margin
A Thorough Understanding of Margins is necessary if you wanna be part of the Forex World. There many kinds of terms and types that sometimes might need clarity. iBFT will always dwell deeper into any concept.
- Margin Required
- Account Margin
- Used Margin
- Unusable Margin
- Margin Call
The Margin Required, as explained is the amount of money your broker needs or requires from you in order to open a position and this is commonly expressed in percentages as illustrated above.
The Account Margin – Total amount of money in your trading account, so it’s just one of those phrases used, might seem unnecessary, but it’s the forex jargon that needs to be gotten used to.
The Used Margin, Remember how a margin is the sum of money required to open a position with your broker, this is said to be a “good faith deposit”. Your broker locks up your money to keep your position open – Do not despair, the money is still yours – The broker will give you back the money when you close a position or when you receive a margin call (Read more…)
The Margin Call, When the Account Margin cannot cover all your loss, you get what we call Margin Call. When your equity falls below your used margin – During this, some or all positions will be closed by the broker at the market price.