Margins Explained.

by | Aug 9, 2019 | Trading Guides

Margins Explained.

In its simplest terms, a margin in the amount of money which is required for having an opened trading position.

A free margin refers to the free amount of money which can be used for opening additional positions.

Often Margins are mistaken for a form of commission that is required of the individual. However, this is not the case. A margin is simply collateral for trading Forex and CFD’s.

Margin requirements may vary dependent on various reasons, including, trading symbols, leverage, trading volume and market situations.

 

BlackBull Markets provides our traders with the MT4 trading platform system.

The MT4 system does provide a continuously updated feed of our traders,

  • Balance: Subject of initial deposit amount.
  • Equity: Function of your balance minus the profit/loss on your open positions.
  • Margin: Function of the leverage you are trading as well as the notional volume.
  • Free Margin
  • Margin percentage

 

Margin Formula:

Margin = (Notational volume * Current Trading Value of currency) / Leverage.

Where, Notational volume is the amount of lots multiplied by 100,000 units.

 

Example:

  • BlackBull Markets offers leverage of 1:500
  • Assume a balance of $1000
  • Equity of $400
  • And you were trading the EURUSD, which is currently trading at 1.11890 mark.
  • And you were trading 3 lots.

If we were to enter these quantities into our Margin Formula:

= ((3*100,000) *1.11890) / 500

= (300,000 * 1.11890) / 500

= 335679 / 500 = 713.40 = Margin

This formula indicated that the higher your leverage, the smaller your margin required will be.

Free Margin Formula: Equity – Margin = Free Margin

Example: 400 – 713.40 = 313.40

Margin Percentage Formula:  Equity / Margin= Margin %

Example: 400 / 713.40 = 56.07%

Once you account reaches a Margin percentage below 75%, you will receive a margin call.

Below 50% you will be stopped out / liquidated. Meaning all your open positions will automatically be closed.

To prevent a stop out more funds will be required, or open positions must be closed.

 

With our example we can see that a margin call would have been received by this point and out account is nearing a stop out.

All these calculations are provided on the MT4 platform. However, it is important for a successful trader to understand how these figures are derived and what they represent.

 

If further explanation is required, trading guide videos are available on our YouTube channel, or feel free to contact our support team via live chat.

 

What is a Margin Call: https://www.youtube.com/watch?v=zvKb9HJtTFA

YouTube: https://www.youtube.com/channel/UCTd_TtLf2ajBMKsjv-Ms3RA

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Black Bull Group Limited (trading name: BlackBull Markets) is a New Zealand registered and incorporated company (company number: 5463921). We are also registered with the Financial Services Provider Register (number: FSP403326).

Black Bull Group UK Limited is registered in United Kingdom, Company Number - 9556804. Payment clearing services provided by: BlackBull Group UK Limited (Company Number - 9556804) Address - 483 Green Lanes, London, Greater London, United Kingdom, N13 48S

Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any questions or concerns as to how a loss would affect your lifestyle.

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