What is Margin Account? - How to Calculate Margin

What is Margin Account? - What is Free Margin Level? - What is Used Margin Level?

The meaning of Leverage is having the ability to control a big amount of money using very little of your own money & borrowing the rest - this is what makes the market to attract many traders.

We shall explain leverage first and then explain margin in this learning how to calculate leverage and margin tutorial.

Example:

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

This means you borrow $100 for each one dollar you have in your account.

In other terms your online broker gives you $100 for each $1 in your trading account. This is what is referred to as leverage.

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

If for dollar the online broker gives you 100

Then if you have 1,000 you will 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, or $2,000, or $5,000 account? - Best leverage option to select when opening a real account is 100:1 & not 400:1.

What is 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 trades & is expressed in percentage. For 100:1, the amount you will control is $100,000 as explained in the above examples.

Now can you compare someone investing $1,000 with another one investing $100,000? Obviously Not. This is how it works, it takes you from that guy investing $1,000 to that one investing $100,000. Where does this extra money come from? You borrow from your broker in what is simply known as Leverage. This equity that you borrow, you as a trader borrow it against the $1,000 of your own funds that you deposit with your online broker. If you were to explain what this leverage means - then it is 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 without this leverage it would not be as profitable as it is, in fact you can still select not to use leverage, using the 1:1 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 (your money) if it is expressed as a percent of $100,000 which you control it is:

If leverage ratio = 100:1

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

Margin required = 1%

(1/100 *100= 1%)

"TradeForex - Please simplify because I am Beginner'

(Simplify - your funds is $1,000 after leverage you control $100,000 - $1,000 is what percent of $100,000 - it's 1%) that's your margin requirement for your trading account.

What is Margin Account? - What is Margin Trading? - How to Calculate Margin - Margin Calculation - What is Margin Account - What is Free Margin Level in Forex? - What is Used Margin Level in Forex? - What is Margin in Forex Trading?