Can someone explain the margin and margin % terms displayed on this account please

Hi,
I was watching a video on YouTube. I am confused/ignorant of the following margin figures displayed under the MT4 platform of that presenter’s page. I would be grateful if someone could explain these figures and how the figures were arrived at.

Buy, Size=1.00, Price 1.29295, Price 1.31065, Swap 0.00, Profit 1770,

[B]Balance 100,000.00, Equity 101,764.05, Margin 1,292.95, Free Margin 100,471.10, Margin Level 7870.69%, Profit=1,764.05[/B]

Thanks

Hello ClemG

Margin is the amount of money required to be put to one side when placing a trade. It is taken out of your available balance. The calculation for required margin is derived from the leverage which you account is set at, and the rate at which you are entering the market at. The required margin per trade can be looked at as a ‘deposit’, also, the higher the leverage of the account the less the margin required.

Therefore, if we take the above example:

[B]1. Balance + live profit ‘or’ loss of trade - Margin required for the specific trade = Free Margin Available[/B]

100,000 + 1,764.05 - 1,292.95 = 100,471.10

[B]
2. The margin level, as a %, shows the Live Account Equity against the Margin required for the trade in question.[/B]

101,764.05 is equal to 7870.69% of 1,292.95 (ignore rounding errors here).

[B]
3. We can also see that the above trade was placed on an account which has a 1:100 maximum available leverage.[/B]

1:100 means that the margin required is only 1% of the notional value of the trade. The notional value of the above trade is 100,000 [this is 1.0 lots] x 1.29295 = 129,295

1% of 129,295 is 1,292.95 = Margin required.

[B]4… Using all the above figures, can you work out the ACTUAL LEVERAGE used on this trade? ;)[/B]

Hope this helps.

Hi RISKonFX

Not being familiar with this, I did not fully understand all that you wrote. I will need to study more.
What is the answer to the question you asked?
Thanks and Cheers.

Looking at the rate you provided, 1.2929,5 it looks like the pair being traded was GBP/USD.

For completeness lets assume the account holder also has a trading account based in USD - most traders do, no matter where you are in the world, especially if you primarily trade the major currency pairs.

So, the trader has an account balance of $100,000

The trade has a notional value of $129,295, this is more than the account balance, therefore leverage is being applied (trading a position which exceeds the size of your account)

The leverage being used on this particular trade is therefore 1:1.29

If 2 lots had have been traded, the notional position size would have been equal to $258,590

The leverage being used on this particular trade would have been 1:2.58

The majority of full time traders, and there is of course exceptions to what I’m about to say, use less than 1:10; even though there account may have 1:100 maximum allowable leverage. This then asks the question

“[I]why would a trader who uses 1:10 need an account with 1:100 leverage, it seems unnecessary[/I]”

As already discussed, the reason for this is because it reduces the required margin for the trade in question, and therefore you have more ‘[I]available[/I]’ trading capital at your disposal. It’s the inexperienced traders who perhaps trade with the full 1:100 leverage and then wonder why they have blown their entire trading account :wink:

Margin is the money that broker use from your account to open leveraged position. For example if you open 1 lot position with 1:500 leverage the exact amount of money that broker uses from your account to open position is 100 000/500 = 200$. Free margin is the rest of money you can use to open other positions. To understand margin level, first of all lets take that required margin to open position (200$ as in the case above) is 100%. Margin level shows in how many times your deposit exceeds required margin. In your case 7800% means your deposit exceeds required margin by 78 times. When margin level drops below 100% your broker can issue margin call to you or even get your position stopped out.

This really Isn’t true, at all, profitbaby.

If this was correct, then why in the example provided by ClemG is the margin required 1,292.95. If we used your workings the margin required would be 1,000.00

100,000 / 100 = 1,000

You are just considering the number of units per trade, not the notional value of the trade.

You need to take the exchange rate into consideration to get a TRUE reflection of the margin required to open a trade.

Whoa, Jezzode, what happened to your screen-name? – And what shall we call you from now on?

Your reply to ClemG is spot-on, by the way.

As RISKonFX (Jezzode) explained, your math is wrong.

Jezzode went through the math step-by-step, in a way that would have been clear to you, if you had read the entire thread, before jumping in and posting.

You really should learn to read before replying.

.

Hi Clint,

I had the opportunity to change it, and now I’m stuck with it for at least 21 days should I want to revert back. I’m hoping to start a retail trading blog next year too, which will also have the same name :slight_smile:

As for what to call me, well I suppose we could just stick with James, that is my ‘real’ name after all, as long as it doesn’t confuse others!!