{"id":9454,"date":"2022-10-11T06:32:53","date_gmt":"2022-10-11T06:32:53","guid":{"rendered":"https:\/\/mdr.foobrdigital.com\/?p=9454"},"modified":"2022-10-11T06:32:53","modified_gmt":"2022-10-11T06:32:53","slug":"what-is-margin","status":"publish","type":"post","link":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/2022\/10\/11\/what-is-margin\/","title":{"rendered":"What is Margin?"},"content":{"rendered":"\n

What is margin?<\/p>\n\n\n\n

When trading forex, you are only required to put up a small amount of capital<\/strong> to open and maintain a new position.<\/p>\n\n\n\n

This capital is known as the margin<\/strong>.<\/p>\n\n\n\n

For example, if you want to buy $100,000 worth of\u00a0USD\/JPY, you don\u2019t need to put up the full amount, you only need to put up a portion, like $3,000. The actual amount depends on your forex broker or CFD provider.<\/p>\n\n\n\n

Margin can be thought of as a good faith deposit<\/strong> or collateral<\/strong> that\u2019s needed to open a position and keep it open.<\/p>\n\n\n\n

It is a \u201cgood faith\u201d assurance that you can afford to hold the trade until it is closed.<\/p>\n\n\n\n

Margin is NOT a fee or a transaction cost.<\/p>\n\n\n\n

Margin is simply a portion<\/em> of your funds that your forex broker sets aside from your account balance to keep your trade open and to ensure that you can cover the potential loss of the trade.<\/p>\n\n\n\n

\"Required<\/figure>\n\n\n\n

This portion is \u201cused\u201d or \u201clocked up\u201d for the duration<\/strong> of the specific trade.<\/p>\n\n\n\n

Once the trade is closed, the margin is \u201cfreed\u201d or \u201creleased\u201d back into your account and can now be \u201cusable\u201d again\u2026 to open new trades.<\/p>\n\n\n\n

What is Margin Requirement?<\/h2>\n\n\n\n

Margin is expressed as a percentage<\/strong> (%) of the \u201cfull position size\u201d, also known as the \u201cNotional Value<\/strong>\u201d of the position you wish to open.<\/p>\n\n\n\n

Depending on the currency pair<\/a> and forex<\/a> broker, the amount of margin required to open a position VARIES.<\/p>\n\n\n\n

You may see margin requirements such as 0.25%, 0.5%, 1%, 2%, 5%, 10% or higher.<\/p>\n\n\n\n

This percentage (%) is known as the Margin Requirement<\/strong>.<\/p>\n\n\n\n

Here are some examples of margin requirements for several currency pairs:<\/p>\n\n\n\n

Currency Pair<\/strong><\/td>Margin Requirement<\/strong><\/td><\/tr>
EUR\/USD<\/td>2%<\/td><\/tr>
GBP\/USD<\/td>5%<\/td><\/tr>
USD\/JPY<\/td>4%<\/td><\/tr>
EUR\/AUD<\/td>3%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

What is Required Margin?<\/h2>\n\n\n\n

When margin is expressed as a specific amount<\/em> of your account\u2019s currency, this amount is known as the Required Margin.<\/strong><\/p>\n\n\n\n

EACH position you open will have its own Required Margin amount that will need to be \u201clocked up\u201d.<\/p>\n\n\n\n

Required Margin<\/strong> is also known as Deposit Margin<\/strong>, Entry Margin<\/strong>, or Initial Margin<\/strong>.<\/p><\/blockquote>\n\n\n\n

Let\u2019s look at a typical EUR\/USD (euro against U.S. dollar) trade. To buy or sell a 100,000 of EUR\/USD without leverage would require the trader to put up $100,000 in account funds, the full value of the position.<\/p>\n\n\n\n

But with a Margin Requirement of 2%<\/strong>, only $2,000 (the \u201cRequired Margin<\/strong>\u201c) of the trader\u2019s funds would be required to open and maintain that $100,000 EUR\/USD position.<\/p>\n\n\n\n

\"2%<\/figure>\n\n\n\n

Example #1: Open a long USD\/JPY position<\/h3>\n\n\n\n

Let\u2019s say you\u2019ve deposited $1,000 in your account and want to go long\u00a0USD\/JPY\u00a0and want to open 1 mini lot (10,000 units) position.<\/p>\n\n\n\n

How much margin will you need to open this position?<\/p>\n\n\n\n

\"USDJPY<\/figure>\n\n\n\n

Since USD is the base currency. this mini lot is 10,000 dollars, which means the position\u2019s Notional Value is $10,000<\/strong>.<\/p>\n\n\n\n

Assuming your trading account is denominated in USD, since the Margin Requirement is 4%<\/strong>, the Required Margin will be $400.<\/strong><\/p>\n\n\n\n

\"Required<\/a><\/figure>\n\n\n\n

Example #2: Open a long GBP\/USD position<\/h3>\n\n\n\n

Let\u2019s say you\u2019ve deposited $1,000 in your account and want to go long GBP\/USD at 1.30000 and want to open 1 mini lot (10,000 units) position.How much margin will you need to open this position?<\/p>\n\n\n\n

Since GBP is the base currency, this mini lot is 10,000 pounds, which means the position\u2019s Notional Value is $13,000<\/strong>.<\/p>\n\n\n\n

Assuming your trading account is denominated in USD, since the Margin Requirement is 5%<\/strong>, the Required Margin will be $650<\/strong>.<\/p>\n\n\n\n

\"Required<\/a><\/figure>\n\n\n\n

Example #3: Open a long EUR\/AUD position<\/h3>\n\n\n\n

Let\u2019s say you want to go long EUR\/AUD and want to open 1 mini lot (10,000 units) position.<\/p>\n\n\n\n

How much margin will you need to open this position?<\/p>\n\n\n\n

\"EURAUD<\/figure>\n\n\n\n

Assuming your trading account is denominated in USD, you need to first know what the EUR\/USD<\/a> price. Let\u2019s say EUR\/USD is trading at 1.15000.<\/p>\n\n\n\n

Since EUR is the base currency, this mini lot is 10,000 euros, which means the position\u2019s Notional Value is $11,500<\/strong>.<\/p>\n\n\n\n

Since the Margin Requirement is 3%<\/strong>, the Required Margin will be $345<\/strong>.<\/p>\n\n\n\n

\"Required<\/a><\/figure>\n\n\n\n

How to Calculate Required Margin<\/h3>\n\n\n\n

When trading with margin, the amount of margin<\/strong> (\u201cRequired Margin\u201d) needed to hold open a position is calculated as a percentage<\/strong> (\u201cMargin Requirement\u201d) of the position size<\/strong> (\u201cNotional Value\u201d).<\/p>\n\n\n\n

The specific amount of Required Margin is calculated according to the\u00a0base currency<\/strong>\u00a0of the\u00a0currency pair\u00a0traded.<\/p>\n\n\n\n

If the base currency is DIFFERENT from your trading account\u2019s currency<\/strong>, the Required Margin is then converted to your account denomination<\/strong>.<\/p>\n\n\n\n

Here is the formula to calculate the Required Margin:<\/p>\n\n\n\n

If the base currency is the SAME as your account\u2019s currency:<\/p>\n\n\n\n

Required Margin = Notional Value x Margin Requirement<\/pre>\n\n\n\n
If the base currency is DIFFERENT from your account\u2019s currency:<\/p>\n\n\n\n
Required Margin = Notional Value x Margin Requirement\nx Exchange Rate Between Base Currency and Account Currency<\/pre>\n\n\n\n
The only reason for having funds in your account is to make sure you have enough margin to use for trading.<\/strong><\/p>\n\n\n\n
When it comes to trading forex, your ability to open trades is not necessarily based on the funds in your account balance. More accurately, it\u2019s based on the amount of margin you have<\/strong>.This means that your broker is always looking to see if you have enough margin in your account<\/strong>, which can actually differ from your account balance.<\/p>\n\n\n\n
If this sounds confusing, don\u2019t you worry.  It\u2019ll start to make more sense as we proceed.<\/p>\n\n\n\n
Recap<\/h2>\n\n\n\n
In this lesson, we learned about the following:<\/p>\n\n\n\n
  • Margin Requirement<\/strong> is the amount of margin required to open a position. It is expressed as a percentage (%) of the \u201cfull position\u201d size or \u201cNotional Value\u201d of the position you wish to open.<\/li>
  • Required Margin<\/strong> is the amount of money that is set aside and \u201clocked up\u201d when you open a position.<\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"
    What is margin? When trading forex, you are only required to put up a small amount of capital to open and maintain a new position. This capital is known as the margin. For example, if you want to buy $100,000 worth of\u00a0USD\/JPY, you don\u2019t need to put up the full amount, you only need to put up a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[896],"tags":[],"_links":{"self":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9454"}],"collection":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/comments?post=9454"}],"version-history":[{"count":0,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/posts\/9454\/revisions"}],"wp:attachment":[{"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/media?parent=9454"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/categories?post=9454"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mudassirbackup.infinitycodestudio.com\/index.php\/wp-json\/wp\/v2\/tags?post=9454"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}