In its simplest terms, a margin is the amount of money which is required for having an open forex or CFD trading position.
Free margin refers to the free amount of money which can be used for opening additional positions.
Margin requirements may vary dependent on various reasons, including what asset you are trading, the amount of leverage you have, your trading volume and positions, and other market situations.
Margin Formula:
Margin = (Notational volume * Current Trading Value of currency) / Leverage.
Where, Notational volume is the amount of lots multiplied by 100,000 units.
Example:
- BlackBull Markets offers leverage of 1:500
- Assume a balance of $1,000
- And you were trading the EURUSD, which is currently trading at 1.11890 mark.
- And you were trading 3 lots.
If we were to enter these quantities into our Margin Formula:
= ((3*100,000) x 1.11890) / 500
= (300,000 x 1.11890) / 500
= 335670 / 500
= 671.34 = Margin
This formula indicates that the higher your leverage, the smaller your margin requirement will be.
Free Margin Formula: Equity – Margin = Free Margin
Example: 1,000 – 671.34 = 328.66
Margin Percentage Formula: (Equity / Margin) x 100 = Margin %
Example: (1,000 / 671.34) x 100 = 148.96%
Once you account reaches a Margin percentage below 75%, you will receive a margin call.
Below 50% you will be stopped out / liquidated. Meaning your open positions will automatically be closed.
To prevent a stop out, more funds will be required, or open positions closed.
What is a Margin Call: https://www.youtube.com/watch?v=zvKb9HJtTFA
YouTube: https://www.youtube.com/channel/UCTd_TtLf2ajBMKsjv-Ms3RA
