Understand the basics with our interactive market course.
‘Margin’ (or used margin) represents the amount of funds required to secure positions. When you place a trade, the ‘margin’ is locked in until the trade is closed.
The exact required margin amount depends on the instrument, the size of the position and the leverage.
To calculate it you can use the formula:
Trade size in units / Leverage = Margin in base currency
Trade size in units / Leverage X Exchange rate = Margin in quote currency
Note that the ‘Margin’ figure displayed in your account details represents the total used margin for all open trades.
FxPro offers a useful margin calculator tool: https://www.fxpro.com/trading-tools/calculators/margin
Now let's see how the amount required depends on the chosen leverage:
So, if you want to buy one standard lot (€100,000) for EUR/USD, without using any leverage (1:1), you need to have €100,000 on your account.
Let’s have a look at an example of 1 lot, using 1:30 leverage:
100,000 / 30 = €3,333.33
If your account currency is USD (current EURUSD price 1.11413):
100,000 / 30 X 1.11413 = $3,713.77
Please ensure you have read through our ‘lots and leverage’ lesson in order to understand the implications and risks of using leverage.
Other asset groups have a fixed maximum leverage, depending on the asset.
To calculate the required margin for other assets, you can use the formula:
Trade size in units / Leverage X Market Price = Margin in base currency of the asset
Let’s look at an example of how to calculate margin for 1 lot of ‘’GOLD’’, which is denominated in USD currency, using 1:20 leverage (1 lot of Gold = 100oz, current price $1511.73).
100oz / 20 X 1511.73 = $7,558.65
Please refer the FxPro ‘’Leverage Information’’ or specific instrument specifications for details.
Now let’s learn a few basic terms that are important to understand.
‘Free margin’ is essentially what you have ‘free’ to trade or withdraw, it’s the amount on a trading account that is not currently being used to secure existing trades, and which you can use to place new trades.
Equity - used margin = Free margin
‘Equity’ is the balance of your trading account, plus (or minus) unrealised profits (or losses) from any open positions that you have.
As soon as a trade is closed, the unrealised profit or loss will immediately reflect in your ‘balance’.
So, when there are open trades, these figures will be different, as the equity will fluctuate but balance remains fixed until trades are settled. When you don’t have any open trades, your Equity figure will match your Balance.
The ‘margin level’ is the ratio of the amount of equity you have compared to the used margin.
It is represented as a % and calculated with the formula:
Equity / Margin X 100
When the margin level drops to 100% or lower, that means the entire equity of your trading account is used as collateral, and you can no longer open any other positions. This results in a negative ‘free margin’.
A ‘Stop Out’ is a forced automatic closing of a trader's positions in case that person's trading account equity falls below a certain level (it is a fixed %, depending on the platform, please check the platform comparison table for details).
Let’s look at an example using a Stop Out level of 50%. This means that once your Equity falls to a value equal to half of your used margin, stop out(s) will begin to occur.
So, if your used margin is €1000, a Stop out will be triggered when your equity falls to €500.
Stop Outs help to prevent accounts from falling into a negative balance, however, in very fast-moving markets, or the case of market gaps, this is possible.
FxPro offers negative balance protection to all its traders so you can lose only up to the amount deposited. Please check our Order Execution Policy for further details.
Let’s remind ourselves of the definitions of the main trading account terms: