Leverage Example and Margin Example and Examples

Margin required : It's the sum of money your broker requires from you to open a trade transaction. It is expressed in percentages.

Equity : It's the total amount of capital you have in your account.

Used margin : amount of money in your account which has already been used up when buying a xauusd contract, this contract is the one that is displayed in open positions. As a trader you can't use this amount of money after opening a trade because you've already used it and it's not available to you.

In other terms, because your broker has opened up a trade transaction for you using the trading capital you've borrowed, you must keep this usable margin for your account as a security to allow you to continue using this Leverage Examples he has given you.

Free margin : amount in your account that you can use to execute new trades. This is the sum of money in your account that has not yet been xauusd trading Leverage Examples because you've not yet opened a trade using this money - this money is also very important for you as a investor because it enables you to continue holding your open trades as described below.

However, if you over use xauusd trading Leverage Example, this free margin will drop below a certain percentage at which your broker will have to liquidate all of your trades automatically, leaving you with a large loss. Xauusd broker at this point liquidates all your position because if your trades were to be left open they would lose the money that you've borrowed from them.

This is why you should always make sure you've a lot of free margin. To do this never trade more than 5 percentage of your account, in fact 2 percent is adviced.

Difference Between XAUUSD Leverage Example Set by the Broker and Used Leverage Example

If the set xauusd trading Leverage Example is 100: 1, what it means is thatthat-as-a-trader you can borrow upto 100 dollars for every 1 dollar you have in your account, but you do not have to borrow all the $100 for every one dollar that you have, you can select that you want to borrow 50:1 or 20:1. In this instance though leverage ratio option is set at 100:1 your used Leverage Example will be the 50:1 or 20:1 that you have borrowed to make a trade position.

Example:

You have $1000 (Equity)

Set 100:1

Leverage Example Used = Amount used /Equity

If you buy xauusd trading lots equal to 100,000 dollars that you'll have used

= 100,000/1000

= 100:1

If you buy lots equal to 50,000 dollars you'll have used

= 50,000/1000

= 50:1

If you buy lots equal to 20,000 dollars you'll have used

= 20,000/1000

= 20:1

In these three cases you can see that allthough the set is 100:1

The used is 100:1, 50:1, 20:1 depending on the size of lots traded.

So Why not Just Choose 10:1 option as the Maximum Leverage Example? Because to keep within the suitable money management rules it is even adviced that traders use less than this?

This question may seem straight forward but it is not, because when you trade you use borrowed money known A.K.A. Leverage Example. When you borrow capital from anyone or a bank you must maintain a security or collateral to get a loan, even if the security is based on monthly deduction from your own salary, the same thing with XAUUSD.

In xauusd the security is known as margin. This is capital you deposit with your broker.

This is calculated in real time as you trade. To keep your borrowed money you must maintain what is known as required capital (your deposit).

Now if Your Leverage Example is 100:1

When trading if you have $1,000 & use leverage ratio 100:1 & buy 1 standard contract for $100,000 your margin on this transaction is $1000 dollars in your account, this is money which you'll lose if your open trade transaction goes against you the other $99,000 that's borrowed, they will close the open trade transactions automatically once your $1,000 has been taken by the market.

But this is if your broker has set 0 % Margin Requirement before liquidating your trades automatically.

For 20% requirement before liquidating your trades automatically, then your trades will be closed once your account balance gets to $200

For 50 percent requirement of this level before closing out your trades automatically, then your trades will be closed once your account balance gets to $500

If they set 100% requirement of this level before closing your open positions automatically, then your trade position will be liquidated once your balance gets to $1,000: Explanation the trade will close-out as soon as you execute it because even if you pay 1 pips spread your account balance will get to $990 & the needed percent is 100 percent i.e. 1,000 dollars, therefore your orders will immediately get liquidated.

Most brokers don't set 100 % requirement, but there are those who set 100% aren't suitable for you at all, select those set 50 % or 20% margin requirements, in fact, those brokers that set their margin requirement at 20% are some of the best since due to the likely-hood they liquidate-out your trade transaction is reduced as shown in examples above.

To know about this level which is calculated by your software automatically - the MetaTrader 4 Platform will show this as "XAUUSD Margin Requirement", This will be portrayed as a percentage the higher the percentage the less likely your trades are to get closed out.

For Example if

Using 100:1

If xauusd trading Leverage Example is 100:1 and you transact lots equal to $10,000

$10,000 dollars divide by 100:1, used capital is $100

Calculation:

= Capital Used * Percentage(100)

= $1,000/$100 * Percentage(100)

XAUUSD Margin Requirement = 1,000 %

InvestorTrader has 980% above the requirement amount

Using 10:1

If xauusd trading Leverage Example is 10:1 & you trade lots equal to $10,000

$10,000 dollars divide by 10:1, used capital is $1000

Calculation:

= Capital Used * Percentage(100)

= $1,000/$1000 * Percentage(100)

XAUUSD Margin Requirement = 100 %

Investor has 80% above the required sum

Because when one has a higher xauusd trading Leverage Example means that they have more percentage above what is required(A.K.A. More "Free Margin") their open xauusd transactions are less likely to get closed. This is the reason why investors will choose option 100:1 for their account but according to their risk management rules, these investors won't trade above 5:1.

These Zones are Shown on the Software Image Below as an Example:

MT4 Platform