# Using smaller capital to control larger trade positions.

## See Margin formulas below:

If your account currency is different to the base currency of the pair traded.
Required Margin = Lot Size * Contract Size / Leverage * account currency exchange rate

Example Trading 1 lot of EUR/USD using 1:100 leverage with an account denominated in USD.
1 * 100000 / 100 * 1.05280 (current rate EUR/USD) = \$1,052.80

If your account is denominated in USD and the base currency of the pair traded is also in USD

Example Trading 3 lots of USD/JPY using 1:100 leverage with an account denominated in USD.
3 * 100000 / 100 = \$3,000

When converting values from one currency to another, you need to either multiple or divide by the current exchange rate.

• If you want to convert from the base currency to the quoted, you would multiply by the current exchange rate.
• f you want to convert from the quoted currency to the base, you would divide by the currency exchange rate.

Required Margin = Lot Size * Contract Size * Market Price / leverage

Example Trading 1 lot (100 Oz) of XAU/USD using 1:200 leverage with an account denominated in USD. (Current market price: 1777.60)
1 * 100 * 1777.60 / 200 = \$888.8

Example Trading 1 lot (100 Oz) of XAU/USD using 1:200 leverage with an account denominated in EUR. (Current market price: 1777.60)
1 * 100 * 1777.60 / 200 / 1.0528 (current EUR/USD rate) = €844.22

Example Trading 1 Unit of BTC/USD using 1:50 leverage with an account denominated in USD. (Current market price: 16843.35)
1 * 1 * 16843.35 / 50 = \$336.87

Example Trading 1 Unit of BTC/USD using 1:50 leverage with an account denominated in EUR. (Current market price: 16843.35)
1 * 1 * 16843.35 / 50 / 1.05344 (current EUR/USD rate) = €319.77

• Lot Size - is the volume of your positionContract
• Size - is the actual number of units of an asset in your position
• Leverage - is the leverage level applicable to your trading account or symbol.
• Market Price - is the price at which your position is placed
• # FAQs

• In its simplest definition, Free Margin is the money in a trading account that is available for trading. To calculate Free Margin, you must subtract the margin of your open positions from your Equity (i.e., your Balance plus or minus any profit/loss from open positions). For example, if someone with a Balance of \$10,000 were to buy 2 lots of EURUSD at the exchange rate of 1.20000, he would need \$240,000 (200,000 X 1.2000). His required margin for this position would be 240,000/50 = \$4800. Now, let’s say that the price of EURUSD drops to 1.19050 after he entered the trade. This would mean that he incurred a loss of 0.00950 pips (1.20000 – 1.19050), which is equivalent to \$2280 (\$240,000 X 0.00950). So, using the Free Margin formula, the trader’s free margin in this case would be Equity (\$10,000 – \$2280) minus Margin (\$4800) = \$2920.

• Margin Level indicates how "healthy" your trading account is. It is the ratio of your Equity to the Used Margin of your open positions, indicated as a percentage. As a formula, Margin Level looks like this: (Equity/Used Margin) X 100. Let's say a trader has an equity of \$5,000 and has used up \$1,000 of margin. His margin level, in this case, would be (\$5,000/\$1,000) X 100 = 500%. This is a very healthy account! A good way of knowing whether your account is healthy or not is by making sure that your Margin Level is always above 100%.

• A margin call is the term used to describe the alert sent to a trader to notify them that the capital in their account has fallen below the minimum amount needed to keep a position open. A margin call can mean that the trader has to put up additional funds to balance the account, or close positions to reduce the maintenance margin required.

Margin call can also be used to describe the status of your account – i.e., you are 'on margin call' because the funds in your account are below the margin requirement.

When you trade with leveraged products – such as CFDs – there are two types of margin: a deposit margin, needed to open the position, and a maintenance margin, needed to keep the position open. It is the failure to uphold the latter that will trigger a margin call.

If a trade starts to lose money, the funds in your account may no longer be enough to keep the position open and your provider will ask you to top up your account to bring your balance up to the minimum margin – this notification is a margin call. If you top up your funds, the position will remain open. If not, your provider may close the position and any losses incurred will be realized.

The term margin call came from the practice of brokers calling their clients to notify them of the account deficit. But these days, most margin calls are delivered by email.

• A stop out level in forex is a predefined point of 'margin level' whereby a traders' open positions will be closed, to avoid a negative account balance. The margin level % signifies how much equity you have compared to your margin. The use of leverage plays a big role in this, as the more leverage you use, the less margin you are using to secure position(s), leaving more free equity. This is another reason why excessive use of leverage is risky. You can potentially lose more of your equity before reaching stop out, effectively wiping out most of your account.