Margin/Leverage ? Is this example right?

Beginner Questions
1

Hi everyone,

I’m just starting to learn Forex and want to get the numbers straight.

If my account balance is $1000 and buy 1 mini lot for $10000.

My leverage is 10:1

At a 2% margin requirement $200 is set aside

At $1 a pip I lose 200 pips I would then get a margin call and my position would be closed out leaving me with an $800 balance?

Thanks In Advance - I hope I got this right :15:

2

Looks right to me

3

Not quite, no.

The margin requirment is not what you are always left with when margin called - it just means you cant use this capital to open new trades with. This is why you will see “Equity” and “Free Margin”. “Free Margin” is your total equity prior to opening the trade less the margin requirment for the trade in question.

Also - if we want to go into more detail, you will usually be closed out of your trade once your margin is at around -70% depleted, however this given % varies with broker to broker.

With your example:

$200 becomes the margin requirment
$800 is left open to trade with at the exact point of opening the trade
You will get margin called when the balance reduces to about 30% of the margin requirment already tied up (-70% depletion of $200) - you would have to lose $800+$140=$940

You would be left with $60 after the margin call.

4

Thanks for the replies ,

Ok I think I’m getting the idea

Let me try another example just for the sake of examples:

The broker allows me to leverage up to 50:1

I have $1000 and this time I buy 2 mini lots which would be $20000

Now I’m leveraged out at 20:1

The margin requirement here would be $400 , correct?

$600 is left open to trade at the exact point of opening the trade (I have a question about this , I assume this value fluctuates depending on my open trades?)

If my broker closes at 70% depletion then would this be correct : $600+$280 = $880 . Leaving me with a balance of $120?

So in my first example I get margin called at a loss of 940 pips and in the 2nd example I get margin called at a loss of 880 pips?

Will margin requirement always be 2%? So would that be 1% for accounts that can be leveraged at 100:1?

I will open a demo so I can see some of the mechanics behind how this works, but I am trying to know the numeric formulas first.

Thanks for helping the new guy :35:

5

The margin requirement as well as margin calls depend on the broker you will choose. Your second example is not exactly correct either. You usually chose the leverage on your account so if it is 1:50 it will remain so for every single trade you execute.

When you calculate your margin requirement just multiply your currency units (lot size) with the currency pair and divide it by your leverage. For example if you purchase 10,000 units (0.10 lots) of EURUSD which trades at 1.3000 and your leverage is 1:100 your margin requirement would be $130 (if your account is in USD).

6

Ok thanks for the explanation - I am going to make a new example and hopefully I’ll be right this time .

Be back soon

7

Ok these are my specific questions:

My broker allows me to trade at 50:1 leverage

My account size is $1000

I am buying 1 mini-lot of the EUR/USD @ 1.3000 would my position then be $13000?

would my margin requirements be $260?

Would I still be able to use $840 @ 50:1 leverage ? or will that depend on how my first EUR/USD trade is doing?

What if I’m down a 100 pips on my first EUR/USD trade ? How then is the remainder of my balance treated?

I’m getting so many different responses here and in other forums .

8

Yes, if your leverage is 1:50 and the position you intend on taking is $13,000 your margin requirement will be $260. The leverage will always remain the same on your account (unless you request to change it). Yes, it will depend on how your first trade will go. If the price moves 100 pips against you then your available balance to trade will be less (it depends on lots size and leverage).

9

Thanks LastBear,

So is there anything else I’m missing or do you feel I have a good understanding of margin/leverage?

I don’t know why but I wanted to know these numbers before I started the school here , which is what I will do next.

I really appreciate your time helping me. :60:

10

Hi, you are welcome. I think you got it now, in case you feel you still have questions just ask in the thread or PM me. Good luck with your learning curve.