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What is Margin in Forex

What is Margin in Forex?: Margin is basically the minimum deposit required to open and maintain a trading position. This minimum required capital is known as the margin. Margin is as a good faith deposit or collateral that’s needed to open a trading position. In other word, the margin is simply a portion of your total balance that your broker sets aside from your account balance to keep your trade open.

Depending on the broker, the amount of margin required to open a position varies. You may see the margin requirements such as 0.10%, 0.25%, 0.50%, 1%, 2%, 5%, 10% or higher, expressed as a percentage of the lot size.

What is Margin in ForexThe margin enables traders to increase their trading volume size. Margin depends on the leverage that the broker provides to its traders. For example, if a Forex broker offers a 1% margin and the trader wants to open a $100,000 position, then only $1,000 is required to open the transaction. The remaining 99% will be provided by the broker.

What Is Required Margin

The required margin is the minimum amount that will be placed and locked in the open position.

For example, to open a position worth $10,000 with a leverage of 1:200, then $50 ($10,000/200 = $50) will be locked into your account, which is called a required margin. As long as you don’t close this position, you can’t take $50 to take any other position. If you close the position, the $50 deposit will be free.

Leverage RatioMargin Required
1:1 100%

What Is Free Margin

The available margin is the difference between the net value of the trading account and the open position. Suppose you have $500 equity in your trading account and you have opened a position with the required margin of $100 then you free margin will be $400.

Free Margin = Balance – Required Margin
Free Margin = $500 – $100 = $400

What is a margin call

Margin Call is a warning call from your broker about your account which lets you know that you need to deposit more fund in your account, or close losing positions because your account has slipped past the required margin and there is not enough equity in the account to support your Open trades any further.

If you have opened a position and you don’t have free margin (enough cash) in your account relating to your positions, because the market moved against your favour and margin drops below the required levels, then you’ll receive a margin call from your broker, asking you to top up your account immediately which is called Margin Call.