what is forex margin has an important connection with margin call. Not understanding the meaning of margin and related issues such as the trigger of margin calls can lead to unexpected costs. To avoid unnecessary loss, let’s learn about margin requirements with Learn Forex Trading before placing a trade order, to avoid the risk of unreasonable loss of money.
Concept of what is forex margin
So what is margin? Let’s find out through the content below:
what is the forex margin?
Margin is the amount of money that a trader needs to place as collateral to initiate a forex trade. Simply, this is the minimum amount in the account to open a new trading position. Margin requirements are usually expressed as a percentage. When the margin requirement falls below the specified percentage, the trading order will trigger a margin call and automatically close the order.
The example involves the margin in Forex
Below is an illustrative chart between margin requirements and trade size:
Trading volume: $10,000
Margin Requirement: 3.33%
Obviously, with a margin requirement of 3.33%, that’s only $333 needed. You already can make trade sizes up to $10,000
.
Overview of margin in Forex trading
To have a more comprehensive view of margin in forex trading, related terms are important factors that investors need to master. Let’s review the basic terms and outline of idle money through the following content:
Basic terms about deposits
- Equity is the trading account balance after calculating the current total profit. Subtract current losses from the cash balance.
- The margin Requirement is the amount of money needed to trade with leverage.
- Used Margin is a portion of the equity in the account. Used as margin. Temporary hold to ensure the operation of margin trading orders in the account.
- Free Margin is the remaining amount from equity. Certainly after deducting the amount spent.
- Margin Call occurs when Equity drops to a level set by the broker, called the Margin Call threshold. When this happens, the trade will be liquidated immediately. To restore the equity ratio. Margin requirements to an acceptable level.
- The Margin Level is the risk level of a trading account. Calculated by dividing the equity ratio by the used margin. Calculated in percentage.
- Leverage is a financial tool that helps traders increase the size of their investments in the market. Through borrowing money from a broker. Leverage enhances profits but also increases risk due to the need to deposit part of the money in the account.
Idle money in what is forex margin?
Idle margin, also known as unused margin. Refers to the amount of money in a trader’s account that is not tied up as a margin for current trading positions. In other words, this is the amount that the trader can use as a margin to open new trading positions.
Let’s take a closer look at the following example:
Equity: $10,000
Amount used for deposit: $8,000
Idle Deposit = Equity – Deposited Amount = $10,000 – $8,000 = $2,000
Relationship of margin and leverage in forex trading
The relationship between leverage and margin is a close link. As the margin level increases, the leverage used decreases. This reality has a reason when the trader deposits a large amount. They will need less financial support from the broker.
Leverage offers great profit opportunities as well as great risks. Therefore, traders need to approach leverage responsibly. It should be noted that leverage levels may vary depending on the broker. Can also be regulated according to various legal regulations.
What Is Forex Margin Level requirements
Margin requirements are determined by the broker. Based on the level of risk they are willing to accept. Furthermore, margin requirements may also be limited by financial regulatory institutions.
Below is an example of margin requirements for the GBP/USD currency pair:
Margin is considered a fee that traders must pay. However, these are not transaction costs. Which part of your account is held in custody and is considered a margin?
In margin trading, it is important to remember the margin required to maintain the trading position. Margin requirements may increase temporarily during periods of high volatility when economic information is released. Paying attention to this point is important to avoid unwanted margin calls.
After understanding the concept of what is forex margin, traders need to ensure that their accounts have enough funds to avoid margin calls. One way to monitor their account health is through forex margin levels:
Level = (Equity/Used) x 100
Most importantly, traders need to clearly understand the broker’s rules when the margin level drops to a certain level. When the account hits a margin call, an immediate deposit is required. If you do not want your order to be liquidated. Track and accurately identify up or down trends of the market through Forex signals from trading tools.
Risk management when trading on margin
In margin trading, you need to understand how to calculate the required margin for each trading position. Especially if this number is not provided automatically on your trading platform.
Assessing the risk between margin and leverage is an important part of reducing margin growth and reducing leverage. Thereby increasing the safety of your trading account when the market fluctuates
.
Follow important information from economic news or learn What is Breakout in trading. Signs of breaking out if you want to avoid trading during periods of market volatility. This action helps traders avoid unexpected information that could lead to hitting Margin Call.
Protecting your trading account is a priority. Although the probability of losing all the money in your account is only one in a thousand. Only when your account has a balance can you take advantage of trading opportunities in the market.
Conclude
The Learn Forex Trading has helped me to better understand margins and ways to avoid unfair orders being cut due to the What is Forex margin through the above article. This is an important aspect that helps investors participate in the market safely and effectively. We hope investors will research carefully to avoid unnecessary losses.
Questions related to what is forex margin
Why do traders need to understand forex margin levels?
Understanding forex margin levels helps traders evaluate the health of their accounts. Make reasonable decisions to avoid margin call risks.
Why is tracking important economic information important in margin trading?
Tracking important economic information helps traders avoid unexpected market impacts. Thereby reducing the risk of hitting margin calls and protecting your trading account.
Why do traders need to understand the broker’s rules?
Understanding the broker’s rules for when the margin drops to a certain level is important so traders can take appropriate actions. Like instant deposits, to avoid margin calls and keep accounts safe.
