Hello All,
I am operating demo account of pepperstone and i executed a trade Of 1 lot in the XAUSD currency pair as per the attached picture. Please guide me on how the margin has been calculated.
How to Calculate Margin for Forex Trades.
There is also a lesson in the babypips course that covers all types of data such as margin, margin level etc.
Hi Simran,
Most people have a pretty good idea about what margin is. Most, however, do not know much about how it is calculated, myself included. There is also very little by way of documentation to help. What does help is to continue using a demo account to become familiar with the products you trade, so that you know more or less what margin is required for a trade.
To answer your question, there are several variables in the calculation. First you must understand that there are 2 kind of leverage affecting your account, namely the account leverage and also the specific product leverage. Gold, and Oil are, typically, not traded at the same leverage as your major forex symbols. Also brokers can and will adjust the leverage for specific pairs, such as USDTRY.
Your first step is to examine the product specifications. This will tell you how big a standard lot is, as well as the leverage requirements. Unfortunately, brokers present the information differently as there is no universal standard. Many times you will see the Initial Margin at 100. This means that the margin is 100% of your account leverage. Some exotics may present themselves as an initial leverage of 333%.
This happened to me with a European broker where I opened an account recently. They gave me a 1:100 leverage account which is great until I looked at all the FX symbols. They all had an initial margin of 333%, effectively making the account a 1:30 leverage(in line with EMSA).
Other times/brokers, the initial margin may be presented as a simple % figure i.e. 2% or 5%.
The general formula for margin is : lots x contract size / leverage
So for XAU contract size is 100, so you are required to produce $1723.86 x 100 = $172 386. This $172 needs to be factored for account & product leverage and account currency. I can’t really provide any further info without those facts but assuming your account is in USD, suggests a leverage of 1:50. You just need to figure where that 50 figure comes from.
It’s true that you will have to make several calculations while trading forex. But it doesn’t mean that you will have to do all these calculations on your own. Most forex brokers offer their own calculators that you can use to make fast and easy calculations.