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.
The 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.