What's Margin Account? - What is Margin Trading? - How to Calculate Forex Margin
What's Free Forex Margin Level? - What is Used Forex Margin Level? - Free Margin vs Used Margin
The meaning of Leverage is having the ability to control a large amount of money using very little of your own funds and borrowing the rest - this is what makes the forex market to attract many traders.
We shall explain forex leverage first & then explain forex margin in this learn how to calculate forex leverage & forex margin lesson.
Example:
We will use this example to explain what trading leverage is? If your broker gives you leverage of 100:1 (this is best option to select as a maximum for any trading account)
This means you borrow $100 for every one dollar you have in your trading account.
In other words your online broker gives you $100 for each one dollar in your trading account. This is what is referred to as leverage.
This means if you open an account with $1,000 & your leverage ratio is 100:1, then you'll get $100 for every $1 you that you have, the total amount that you will control is:
If for 1 dollar the broker gives you 100
Then if you have 1,000 you'll get a total of:
$1,000 * 100 = $100,000
Now you control 100,000 of Investment
Most new traders ask what leverage is best leverage for $1,000 dollars, or $2,000, or $5,000 account? - The best leverage option to select when opening a live forex account is 100:1 and not 400:1.
What's Forex Trading Margin?
This is the amount of money required by your online broker so that to allow you to continue trading with borrowed amount.
In other words the question what's margin in FX? can be described as the money required to cover open trades and is expressed in percentage. For 100:1, the amount you'll control is $100,000 dollars as explained in the above examples.
Now can you compare a investor investing $1,000 with another one that's investing $100,000? Obviously Not. This is how it works: it takes you from that retail investor investing $1,000 to that investing $100,000. Where does this extra funds originate from? - You borrow it from your broker in what's simply referred to as Leverage. This money that you borrow, you borrow it against the $1,000 of your own money which you deposit with your online broker. If you were to explain what this leverage means - then it is ability to control a large amount of money using very little of your own money and borrowing the rest. Otherwise, if you were trade Forex without this leverage it would not be as profitable as it is, in fact you can still choose not to use forex leverage, using 1:1 option but you would not make money it would take too long to make any profit.
Example of how to calculate fx leverage & fx margin:
Forex Margin required in this case is $1,000 (your money) if it is expressed as a percentage of $100,000 dollars which you control it is:
If leverage ratio = 100:1
1,000 / 100,000 * 100= 1 percent
FX Margin required = 1 %
(1/100 *100= 1%)
"Trade Forex Trading - Please simplify because I am Beginner'
(Simplify - your capital is $1,000 after leverage you control $100,000 - $1,000 is what percent of $100,000 - it is 1%) that is your forex margin requirement for your trading account.
What's Margin Account? - What is Margin Trading? - How to Calculate Forex Trading Margin - Forex Margin Calculation - What is Margin Account - What is Free Forex Margin Level in Forex? - What is Used Forex Margin Level in Forex? - What is Margin in Trading?
