What is Exactly Margin in Forex [With Example]

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What is Margin in Forex

The margin in forex is a performance bond, or good faith deposit, to make certain of resistant to the total lack of your account. Trade stations have margin management capabilities. In the event that funds within the account fall below margin requirements the broker’s dealing desk will dose al open positions. This prevents cents’ accounts from falling into an adverse balance, even in an incredibly volatile, fast moving market.
The newest NFA rule requires at least 1% margin at al time to keep an open trade. (Noe this might change from time to time so although we use 1% when the example at some sage in the future the margin maybe different. However using similar calculations one can easily calculate brand new margins) Some deal stations automatically calculate this according to the formula and therefore the margin requirements are continually varying.

How to Calculate a Margin Closeout?

According to a 1% margin requirement

Example 1

GBP/USD

rate: 1.7442/1.7447

account type: 100 000/lot account

1% leverage: 100 000×0.01 (1%) =1000units

If you are long (buy) GBP/USD, the forex margin required is:

1.7447 (GBP/USD) x1000 (units of base currency GBP) = USD1744 for each lot.

Some brokers require $1,800 margin for GBP pairs.

Example 2

EUR/USD

rate: 1.2326/1.2331

account type: 100 000/lot account

1% leverage: 100 000×0.01 (1%) =1000units

When you are long (buy) EUR/USD, ,he margin required is:

1.2331 (EUR/USD) x1000 (units of base currency EUR) = USD 1233 for each and every lot.

Some brokers require $1,300 per lot in margin for EUR based pairs. As a general rule, a margin of $1,300 lets you control a $100,000 spot currency position. This is certainly an efficient use of trading capital as the leverage in futures and sock markets is quite a bit less.

Example 3

when the USD is the BASE currency, ,he margin requirement is USD1000 (ie 1% of 100 000)

If you find yourself long (buy) USD/CHF, USD/CAD etc the margin required is: = USD1000 for every lot.

 Read : What is Leverage in Forex Trading [Full Tutorial]