Leverage Example and Margin Example and Examples
Margin required : It's the sum of money your broker requires from you to open a trade. It is expressed in percentages.
Equity : It's the total sum of capital you have in your trading account.
Used margin : amount of money in your account that has already been used when buying a xauusd contract, this contract is the one that is displayed in open positions. 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 online 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 trade transactions. This is the sum of money in your trading 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 have borrowed from them.
This is why you should always make sure you have a lot of free margin. To do this never trade more than 5 percentage of your account, in fact 2 percent is advised.
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 don't 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 will have used
= 50,000/1000
= 50:1
If you buy lots equal to $20,000 dollars you will have used
= 20,000/1000
= 20:1
In these three cases you can see that although the set is 100:1
The used leverage ratio is 100:1, 50:1, 20:1 based 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 equity money management rules it is even advised 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 as 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 referred to as margin. This is capital you deposit with your online broker.
This is calculated in real-time as you trade. To keep your borrowed money you must maintain what is referred to as required capital (your deposit).
Now if Your Leverage Example is 100:1
When trading if you have $1,000 dollars and use leverage ratio 100:1 & buy one 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 trades automatically once your $1,000 balance has been taken by the market.
But this is if your online broker has set 0% Margin Requirement before closing out your trades automatically.
For 20% requirement before liquidating your trades automatically, then your trades will be stopped out once your trading account balance reaches $200
For 50 % requirement of this level before closing out your trades automatically, then your trades will be stopped out 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, therefore your orders will immediately get liquidated.
Most online brokers do not 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 is reduced as shown in examples above.
To know about this level which is calculated by your software automatically - the MetaTrader 4 Platform Software will show this as "Gold 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)
Gold Margin Requirement = 1000 %
Trader 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)
Gold 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 select option 100:1 for their account but according to their risk management guidelines, these investors won't trade above 5:1.
These Zones are Shown on the Software Image Below as an Example:
MT4 Platform
