Margin In Forex: What Is Free Margin And Margin Level In Forex

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Margin in forex refers to the amount a trader needs to execute a trade and keep a position open.

In forex trading, margins are expressed as a percentage, and you only need to pay a percentage of the amount of the position to open a trade.

In fact, with small capital, margin allows traders to leverage positions.And when it comes to leverage in forex, the margin is one of the crucial concepts you need to understand.

In the previous post, we discussed leverage in forex and how it can help you to be a successful trader.

What Is Free Margin

Free margin is the amount of money you can use to open a trade without paying any additional amount.

This amount is calculated by taking into account the minimum margin requirement set by your broker. You can think of free margin as the amount of money that is not yet used. 

For example, let’s say you want to open a position worth $10,000. To do this, you will need to have a certain amount of money in your trading account. 

This amount depends on the broker and on the type of account that you have. 

Let’s say that your broker requires a minimum margin of 10% of the position, so you will need to have $1,000. This means that you will have $9,000 of free margin in your trading account.

Also read: How to use Relative Strength Index in Forex

What Is Margin Level In Forex

Margin In Forex
Margin in forex

Margin level refers to the percentage of the position you open. For example, if you have a $10,000 position, then you have a margin level of 100%. 

A higher margin level increases the risk of your position and decreases your profits, but it also increases your leverage. 

A lower margin level decreases the risk of your position but also decreases your profits and reduces your leverage. 

You can think of margin level as a percentage of what you have in your trading account. If you have $10,000 in your trading account, then you have a 100% margin level.

Difference Between Margin And Leverage In Forex

The difference between margin and leverage in forex is that leverage is a ratio and margin is the amount of money you need for a position. 

Margin is the amount of money you deposit into your trading account. 

This means that if you want to buy $10,000 worth of EUR/USD, you will have to deposit $9,000 into your trading account and have $10,000 worth of EUR/USD. 

Leverage is how much you can buy or sell with a certain amount of money. If you want to buy $10,000 worth of EUR/USD, and you have $9,000 in your account, then you have 50% leverage.

How To Increase Margin Level In Forex

If you want to increase your margin level, you need to make sure that you are not over-leveraging your positions. To increase your margin level, you need to deposit more money into your trading account. 

You can increase your margin level by depositing more money into your trading account. If you have $1,000 in your account, you can add another $5,000 to your account.

This will increase your margin level to 50%. Also, don’t forget that margin is not free. You will be charged interest on the amount of money you have in your account.

Forex Margin Calculator

Margin calculators are very popular among forex traders. These calculators can help you to understand how margin works in forex. 

For example, let’s say that you have $10,000 in your trading account, and you want to buy $10,000 worth of EUR/USD. 

In this case, you have a 100% margin level, and if you want to increase your margin level, you can deposit more money into your trading account. 

For example, if you have $5,000 in your account, you can deposit another $5,000 and increase your margin level to 50%. 

These margin calculators can also help you to understand how much you have to have in your trading account. For example, if you want to buy $10,000 worth of EUR/USD, you will have to have $9,000 in your trading account.

How To Calculate Margin In Forex

Margin is calculated as a percentage of the position. To calculate margin, you need to multiply the number of contracts you want to buy or sell with the margin rate. 

For example, let’s say that you want to buy 10 contracts of EUR/USD at a margin rate of 2%. To calculate margin, you need to multiply the number of contracts with the margin rate. 

In this case, you will have: 10 x 2 = $20. You can then multiply this amount with the total value of your position.

In this case, you will have: $20 x 10,000 = $200 This means that you have to have $200 in your trading account to open this position. The formula to calculate margin Is margin level = ( equity / used margin ) x  100

Also read: 10 Things You Need To Know Before Going Into Forex Trading

Conclusion

Margin is a critical concept in forex trading. It allows traders to leverage their positions and open trades with less capital.

But you also need to remember that margin is a loan, and when you open a position, you are borrowing money from your broker. 

This means that you need to be careful with margin and make sure that you are not over-leveraging your positions.