What's Margin in Forex? - Forex Margin Explained - How to Calculate Forex Margin Example

How to Calculate Leverage & Margin - Forex Margin Example Forex Margin Meaning

The definition of Leverage is having the ability to control a large amount of money using very little of your own money and borrowing the rest - this is what makes the currency market to attract many investors.

We shall explain forex leverage first & then explain forex margin in this learn how to calculate forex leverage & margin lesson.

Example:

We shall us this example to explain what forex leverage is? If your broker gives you leverage of 100:1 (this is best option to select as a maximum for any account)

This means you borrow 100 dollars for every dollar you have in your forex trading account.

To put in another way your broker gives you 100 dollars for every 1 dollar in your account. This is what is known as leverage.

This means if you open an account with $1,000 & your leverage is 100:1, then you'll get $100 for every $1 you that you have, the total amount that you'll control is:

If for 1 dollar the broker gives you 100

Then if you have 1,000 you will get a total of:

$1,000 * 100 = 100,000 dollars

Now you control 100,000 dollars of Investment

Most new forex traders ask what leverage is best leverage for 1,000 dollars, or 2,000 dollars, or 5,000 dollars forex account? - The best leverage option to select when opening a live forex account is always 100:1 and not 400:1.

What's FX Trading Margin?

This is the amount of money required by your broker so that to allow you to continue trading with borrowed amount.

In other words the question what's margin in Forex? can be described as the money required to cover open currency trades & is expressed in percentage. For 100:1, the amount you will control is 100,000 dollars as explained in the above examples.

Now can you compare a investor investing $1,000 with another one that is 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 cash come from? - You borrow it from your forex broker in what's simply referred to as Leverage. This money that you borrow, you borrow it against the $1,000 dollar of your own money which you deposit with your forex broker. If you were to explain what this leverage means - then it's the ability to control a big 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 leverage, using the 1:1 leverage option but you would not make money & it would take too long to make any profit.

Example of how to calculate leverage & margin:

Margin required in this case is 1,000 dollars (your money) if it is expressed as a percentage of 100,000 dollars which you control it is:

If leverage = 100:1

1,000 / 100,000 * 100= 1%

Margin required = 1%

(1/100 *100= 1%)

"TradeForex 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's your margin requirement for your forex account.