Currently, many traders may not understand Free Margin clearly. This begs the question: What Is free Margin In Forex? How to calculate it? What are the risks associated with abusing Free Margin in forex? Let’s learn about these issues in detail with Learn Forex Trading through the article below!
Overview of information about What Is Free Margin in Forex?
To become a professional trader, investors first need to understand the basics of what is a trader job. Then start consolidating and improving your forex knowledge to trade effectively.
In the process of investing in the foreign exchange market (Forex), Margin is a familiar concept. It refers to the collateral required to open and maintain a trading position.
General information What Is Free Margin in Forex?
Free Margin, also known as available margin. It represents the amount of money that is not allocated or used as a Margin in the trader’s trading account. The remaining balance reflects the trader’s ability to continue making trades.
In case the free margin amount drops or reaches zero, the trader will not be able to open any additional trades. They will have to be ready to face a Margin Call/Stop Out situation. This raises the importance of margin management. Because it directly affects the ability to participate in potential trading activities.
See more: What is a trader that becomes successful?
How to calculate free margin forex
Free Margin Calculation Formula What Is Free Margin in Forex? The following is the calculation formula expressed as follows:
Free Margin = Equity – Used Margin = Equity – Margin Used
To calculate Free Margin, you can follow four steps as follows:
- Step 1: Calculate the required margin amount.
- Step 2: Calculate the used margin amount.
- Step 3: Determine and calculate Equity.
- Step 4: Determine and calculate the Free Margin.
Effect of leverage on available margin
Leverage is a tool provided by brokers in forex trading and investing. It allows traders to control larger positions in the market. Use using little equity capital. Expressed as a scale such as 1:50 or 1:100. Leverage indicates the increase in the size of a trading position that can be reached.
The relationship between leverage and available margin is extremely important. As leverage increases, the margin required to open a position decreases. This means you need less free margin to make trades. For example, with a leverage ratio of 1:100, only 1% of the total position size is needed as margin.
However, it should be noted that although leverage gives trading power. But it also comes with significant risk to the available margin. High leverage can magnify potential profits and losses. In the event of an unfavorable trade, losses can quickly deplete the margin. This may result in a margin call or liquidation.
What is the way to track free margin in forex?
Keeping track of available margins is very important. To ensure that this quantity always remains at a safe level and does not exceed a specific threshold.
So how to track What Is Free Margin in Forex? Below are some steps you can take to ensure your margin is protected. Also available for use in forex trading.
Use stop-loss orders when depositing
A stop-loss order, simply understood, is a type of automatic order. It is set up to close a trading position automatically when the market moves in the opposite direction to your intended. Using stop-loss orders is not just an automatic measure to keep a trading account safe. Besides, it is also a way to limit possible losses.
Using stop-loss orders is a smart risk management strategy in trading. Especially when the market is volatile and has unpredictable changes. This way, users can maintain control and flexibility during the trading process. At the same time, minimize the impact of unforeseen market fluctuations
Expand your position when trading forex
Position scalping is a strategy where the trader gradually opens new positions of smaller size. Instead of opening large positions all at once. This way, position scaling is not only focused on enhancing profit margins. It also reduces the risk of triggering a margin call due to overtrading.
Instead of betting all capital on one large position opening, position scalping allows the trader to split the investment capital. They can scale positions in smaller increments. This has the benefit of minimizing the total risk of the entire trading strategy. If some positions do not reflect market intentions, losses will be limited to only a small portion of the invested capital.
Position scalping is not only a smart risk management strategy but also a way to optimize trading performance. In addition, it also creates favorable conditions for testing and adjusting strategies over time.
Follow news about deposits
Keeping an eye on market volatility and ongoing news events is an important key to understanding possible price fluctuations. Sudden price changes can cause instability. From there, margin requirements can be set.
Therefore, remaining alert and flexible in adjusting trading positions is important. To ensure that the investment strategy is always appropriate and flexible to any fluctuations in the market.
What are the risks when using What Is Free Margin in Forex?
Abusing Free Margin is not only simple but also carries significant risks. It may affect the safety and performance of the trading account. In managing Free Margin, traders need to pay special attention to the following important risk warnings:
- Margin Call: Margin Call occurs when Equity drops close to the Used Margin level. In this situation, the trading system will issue a warning signal. Requires traders to add additional funds to the account to maintain current positions. Or you can avoid having your position closed automatically.
- Stop Out: Stop Out occurs when Equity drops close to zero. In this case, the exchange will automatically close all open positions. Aims to protect the safety of user accounts.
What are the risks when using What Is Free Margin in Forex
In addition, investors need to learn more about Bull Trap? To avoid bull traps and optimize your profits.
See more: Opening and verifying an ICMarkets account
Solution to avoid risks related to Free Margin
After understanding the basic information, many traders will wonder what the limitations are when using What Is Free Margin in Forex? To trade effectively and avoid risks related to Free Margin, traders should take the following specific measures:
- Risk management: Set the most appropriate margin level to avoid Margin Calls or Stop. Careful risk management helps maintain stability during trading.
- Position control: Make sure you only open financial trading positions that suit your budget and knowledge. Avoid taking unnecessary trading risks.
- Use stop-loss: Set stop-loss orders to limit risk and protect your account from sudden price drops. Especially in unpredictable market situations.
Conclude
Above, Learn Forex Trading has provided readers with information about What Is Free Margin in Forex. Hopefully, through this article, traders will have a deeper insight into free margin. From there, you can avoid the risks when using free margin. Wishing you a smoother and more successful transaction!
Frequently asked questions
What Is Free Margin in Forex?
Free Margin is the amount of margin available in your trading account. It is calculated by subtracting the used margin from the total equity.
Free Margin is calculated according to what formula?
The formula to calculate Free Margin is: Free Margin = Equity – Used Margin. Where Equity is the total equity and Used Margin is the margin used to open trading positions.
Why is Free Margin important in Forex trading?
Free Margin is an important indicator to evaluate the ability to open new positions. You can also maintain your current positions. Careful Free Margin management helps users avoid situations like Margin Calls or Stop Out.
