Sat. Jun 19th, 2021

# Calculating Margins

Mar 7, 2021

What is Margin, How is it calculated?

In the Forex market, the term margin is as important as other commonly used terms. If we want to win in this market, we need to know what the basic financial terms are at a certain level and how they are calculated. For this reason, let’s examine in detail what is margin and how margin is calculated.

Margin; It is the minimum amount of collateral that must be kept in the account in order to open a trade on a product.

Whether you make a BUY or SELL transaction in Forex, you must have a certain amount of collateral for each transaction you make. With the effect of leverage ratios, this collateral amount can be reduced by 1 in 100 max. In other words, you can open a transaction up to 100 times the maximum amount of your deposit, the balance you have deposited into the account. How to use forex leverage, it is very difficult to be successful in the forex market without having detailed knowledge about forex leverage calculation. Therefore, in the rest of the article, we will examine in more detail what is margin, how margin is calculated, what is the leverage ratio.
Capital Markets Board of the forex market of customers from değiştirilmiştir.

Margin features;

The margin level calculated for each product is different.
Since the amount of margin required to be in the account in a transaction will be blocked, this amount cannot be withdrawn from the account during the time the transaction is open.
In the margin calculation, the leverage ratio of the products must be known.
The amount of lots traded is taken into account when calculating the margin level.
Since the Buying and Selling transactions of the same amount equal each other in the same product, no margin is taken.

To better understand what margin is, let’s explain the subject in an example.

For example;
You want to open a 1 lot BUY in USDAUD parity.
1 lot USDAUD transaction actually means opening a transaction of 100,000 USD. (USDAUD contract size = 100,000 units)
If your account’s leverage ratio is 1: 100; The amount of collateral to be received means 1 in 100 of the transaction volume you make.

100,000 / 100 = 1000 usd margin required.

In other words, in order to open a 1 lot transaction in USDAUD parity, the min. the amount is 1000 USD.
If you have deposited 500 USD for forex transactions in your account, you cannot open a 1-lot USDAUD transaction.According to the new CMB communiqué, persons with a balance below 20,000 AUD can open a trade maximum 50 times the balance in their account.

So; If you have 500 USD in your account,
You can open a transaction of 500×50 = 25,000 USD. This means 0.25 lots transaction per lot.

In order to open a trade above 0.25 lots, you need to load money into your account, but you can consider a trade in the opposite direction. If you have a BUY 0.25 lots, you can open a SELL 0.25 lot.
When you open both a BUY and SELL transaction in a product, no margin will be taken from your account. In this way, you can evaluate it in a third transaction.

MARGIN CALCULATION FORMULA

Margin = Lot x Contract size x Product price
Leverage ratio

Contract size: Contract size of a 1-lot transaction
Product price: The transaction price in the direction you want to make
Leverage ratio: The product’s leverage ratio

Let’s calculate the margin for a transaction of 0.10 lots for a price of 2.90 USD. (If the leverage ratio is 100)

Margin = 0.10 x 100,000 x 2.90 = 290 AUD
100

According to the formula, the margin comes out in the opposite currency. By dividing the value that comes out to find the dollar equivalent by the USDAUD rate, we can reach the result as 290 / 2.90 = 100 USD.

In trading platforms, this margin account is automatically made by the system. Therefore, many people make transactions without knowing this margin account. However, knowing how the margin is calculated, how much margin is required to open new trades, how many trades can be closed without the margin level and calculating the margin level. gives information.