Margin and Margin Call

MARGIN AND MARGIN CALL


To offer you a leverage, your broker needs to be sure that you are capable to cover a potential loss of the trade.

Margin is an amount of money on your trading account required for opening new positions and keeping initiated trades open.

Once you open an order, your broker will control the margin up until you close the order.



And if you lose you never risk the leverage you borrowed but you risk the margin.

Remember when we opened a 1-lot-size order with a 1:50 leverage, the marginequaled $2000, which was all the money we had on our balance.

Hence, we could not open new ordersuntil we close this one.

But if we trade 1 mini lot ($10,000) with 1:50 leverage, then, to control trades of such volume, we will only need $200.

This way, we will be able to use the leftover of $1800 for further trading.

Leverage is expressed as a ratio (such as 1:50), and the margin is expressed in percentage terms:
  • If you set the leverage at 1:50, the margin amounts to 2% of the order volume.
  • While if you set the leverage at 1:100, the margin amounts to 1% of the order volume.

Like the leverage ratios, margin requirements vary depending on different currency pairs.

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