As a trader who aims to be successful in a trading career, it is important for you to know margin closely, especially when you use Metatrader 4. This is needed as one of the anticipations for managing risk according to your plans and goals. Therefore Finex is ready to help you understand about this one term.

In general, Forex trading margins can be interpreted as collateral that can be used to open positions that exceed the trading funds you have.

Margin is often seen as a trader's expense. However, it should be remembered that margin is not a transaction fee, but rather a part of the capital set aside as a deposit (collateral), because before starting trading, you need a minimum amount to open a position.

Each broker sets margin requirements based on the level of risk that is ready to be borne while meeting the regulations set by the regulator and margin is usually displayed as a percentage.

The amount of margin required to hold an open position is determined by the trade size. As the trade size increases, you will move to the next level where the margin requirements will also increase. Margin requirements can increase temporarily during periods of high volatility or ahead of the release of economic data, which often has more impact than normal volatility.

Margin and Leverage

In understanding margin, you must also know its relationship with leverage, because the more margin you need, the less leverage you can use. The more funds you spend on trading means the less funds you borrow from the broker.

Leverage is the practice of using borrowed funds to increase a trading position beyond what is available on the balance. Basically, it is leverage that "lifts" your trading power higher than your funds can handle.

For example, if you use 1:200 leverage, you can open a transaction with a size 200 times larger than the actual funds. So to open a transaction of 1 lot or $100,000, you can use $500 of funds.

The formula:

200 x 500 = 100,000

Don't forget to understand the concept of leverage and its relation to margin is to always be vigilant in managing leverage and risk, so you too can stay away from losses.

How to Calculate Margin

In calculating margin in Forex, there are basic things that should be known, such as the amount of margin required for open positions can vary and the price when entering the market can determine the calculation of margin.

You can calculate the margin manually, but you can also use a Forex margin calculator.

Just jump into the case study and calculate it manually. If you use 1:200 leverage and want to buy 1 lot of AUD/USD at a price of 0.72750, then the required margin for an open position is:

(0.72750 x 1 x 100,000) / 200 = $363.7

or equal to

The price is multiplied y the trade size, then divided by the leverage.

Managing Margin Trading Risk

You already know the meaning of margin, how to calculate it, and how the relationship between margin and leverage is. In addition, it is important to always monitor news releases using the economic calendar to avoid trading during volatile periods.

As long as the floating minus exceeds the margin, and the balance cannot match your position, you will be automatically covered by a system called a margin call. It should be borne in mind that when an account is on a margin call, the account needs to be added to funds immediately to avoid liquidating open positions.

It can be said that a margin call is a warning system that indicates that the trading capital is not enough so that the trade needs to add capital to its fund balance.

It is quite recommended to have a large amount of funds which is calculated as free margin. This will help you to avoid margin calls and ensure that you have sufficient funds to immediately start trading with high profit potential.

Tips for Traders

In closing, consider the tips on managing Forex level margins from Finex:

1. Always monitor your risk, that when entering the market and making an open position, you already have to know the risks that will be faced.
2. Pay attention to the timing of your open position, because too rarely or too often will affect the margin. A balanced open position can help your position last longer.
3. Frequently monitor news to know market conditions, both in terms of price and volatility.
4. Big margin doesn't mean big profit. Always do an in-depth analysis of the steps you are about to make.