What is Margin?
November 14, 2022
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Margin is a part of the trader's account balance that is set aside in order to keep a trading position open. The amount of margin required by each broker can vary depending on their policies. Usually, the margin will be expressed as a percentage of the full position. It can vary from 0.25%, 0.5%, 1%, 2%, 5%, 10%, or higher, depending on the leverage used. This also knows as the margin requirement.
For example, a trader wants to buy 1 lot of EUR/USD at the price of 1.1200. If they don't use any leverage, their margin requirement would be 100%. But if they use 1:50 leverage, they would only be required to put 2% as margin.
Here are the comparisons:
- Scenario without leverage:
Margin requirement = 1 lot x 1.1200 x 100,000 = $112,000 - Scenario with 1:50 leverage:
Margin requirement = (1 lot x 1.1200 x 100,000) / 50= $2240