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Learning Some Very Important Terms in Forex Trading Is a Must before Risking Any Money: Leverage, Margin, Balance, Equity, Free Margin, Margin Call and Stop out Level

I always see that so many traders who trade forex, don’t know what margin, leverage, balance, equity, free margin and margin level are.

As a result, they don’t know how to calculate the size of their positions.

Indeed, they have to calculate the position size according to the the risk and the stop loss size.

Margin and leverage are two important terms that are usually hard for the forex traders to understand.

It is very important to understand the meaning and the importance of margin, the way it has to be calculated, and the role of leverage in margin.

In order to understand what margin is in Forex trading, first we have to know the leverage.

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What Is Leverage?

“Leverage” is a feature offered by the brokers.

It is like an special offer indeed.

It helps the traders to trade the larger amounts of securities through having a smaller account balance.

For example, when your account leverage is 100:1, you can buy $100 by paying $1.

Therefore, to buy $100,000 (one lot), you should pay only $1000.

This was just an example to understand what leverage means.

I know that nobody pays US dollar to buy US dollar 😉

A small exercise:

How much do you have to pay to buy 10 lots USD through an account that its leverage is 50:1?

That is right.

You have to pay $20,000 to buy 10 lots or $1,000,000 USD:

$1,000,000 / 50 = $20,000

Leverage was so easy to understand, right?

I had to explain it first, to become able to talk about the other term which is margin.

What Is the Required Margin?

Margin is calculated based on the leverage.

But to understand the margin, let’s forget about the leverage for now and assume that your account is not leveraged or its leverage is 1:1 indeed.

“Required Margin” is the amount of the money that gets involved in a position or trade as collateral.

Let’s say you have a $10,000 account and you want to buy €1,000 against USD.

How much US dollars do you have to pay to buy €1,000?

Let’s assume that the EUR/USD rate is 1.4314.

It means each Euro equals $1.4314.

Therefore, to buy €1,000, you have to pay $1,431.40:

€1,000 = 1000 x $1.4314

Therefore:

€1,000 = $1,431.4

If you take a 1000 EUR/USD long position (you buy €1000 against USD), $1,431.4 from your $10,000 account has to be locked in this position as collateral.

When you set the volume to 0.01 lot (1000 unit) and then you click on the buy button, $1,431.4 from your account will be paid to buy 1000 Euro against USD.

This “locked money” which is $1,431.4 in this example, is called Required Margin.

– If You Close Your Position

Now, if you close your EUR/USD position, this $1,431.4 will be released and will be back to your account balance.

Now let’s assume that your account has a 100:1 leverage.

To buy 1000 Euro against USD, you have to pay 1/100 or 0.01 of the money that you had to pay when your account was not leveraged.

Therefore, to buy 1000 Euro against USD, you have to pay $14.31:

$1,431.4 / 100 = $14.31

Now, please tell me that if you take a one lot EUR/USD position with an account with the leverage of 100:1, how much margin will be locked in this trade?

One lot EUR/USD = 100,000 Euro against USD
EUR/USD rate: 1.4314
100,000 x 1.4314 = 143,140.00
Therefore:
One lot EUR =$143,140.00

Leverage: 100:1

Margin = $143,140.00 / 100 = $1,431.40

Therefore, to have a one lot EUR/USD position with a 100:1 account, a $1,431.40 margin is needed, while the EUR/USD rate is 1.4314.

This needed $1,431.40 margin is called “required margin”.

You can use the below margin calculator to calculate the required margin in your trades:

What Is the Account Balance?

When you have no open positions, your account balance is the amount of the money you have in your account.

For example, when you have a $5000 account and you have no open positions, your account balance is $5000.

What Is the Equity?

Equity is your account balance plus the floating profit/loss of your open positions:

Equity = Balance + Floating Profit/Loss

When you have no open position, and so no floating profit/loss, then your account equity and balance are the same.

When you have some open positions and for example they are $1,500 in profit in total, then your account equity is your account balance plus $1,500. If your positions is $1,500 in loss, then your account equity would be your account balance minus $1,500.

What Is the Free Margin?

Free margin is the difference of your account equity and the open positions’ required margin:

Free Margin = Equity – Required Margin

When you have no positions, no money from your account is used as the required margin.

Therefore, all the money you have in your account is free.

As long as you have no positions, your account equity and free margin are the same as your account balance.

Let’s say you have a $10,000 account and you have some open positions with the total required margin of $900 and your positions are $400 in profit.

Therefore:

Equity = $10,000 + $400 = $10,400

Free Margin = $10,400 – $900 = $9,500

What Is the Margin Level?

Margin level is the ratio of the equity to the margin:

(Equity / Margin) x 100

Margin level is very important.

Brokers use it to determine whether the traders can take any new positions when they already have some positions.

Different brokers have different limits for the margin level, but this limit is usually 100% with most of the brokers.

This limit is called Margin Call Level.

What Is the Margin Call Level?

100% margin call level means if your account margin level reaches 100%, you can still close your open positions, but you cannot take any new positions.

Indeed, 100% margin call level happens when your account equity, equals the required margin:

Equity = Required Margin => 100% Margin Call Level

It happens when you have losing position(s) and the market keeps on going against you.

As a result, when your account equity equals the margin, you will not be able to take any new positions anymore.

Let’s say you have a $10,000 account and you have a losing position with a $1000 required margin.

If your position goes against you and it goes to a -$9000 loss, then the equity will be $1000 ($10,000 – $9,000), which equals the required margin:

Equity = $10,000 – $9,000 = $1000 = Required Margin

Therefore, the margin level will be 100%.

If the margin level reaches 100%, you will not be able to take any new positions, unless the market turns around and your equity becomes greater than the required margin.

But, what if the market keeps on going against you?

If the market keeps on going against you, the broker will have to close your losing positions.

Different brokers have different limits and policies for this too.

This limit is called Stop Out Level.

What Is the Stop out Level?

For example, when the stop out level is set to 5% by a broker, the system starts closing your losing positions automatically if your margin level reaches 5%.

It starts closing from the biggest losing position first.

Usually, closing one losing position will take the margin level higher than 5%, because it will release the required margin of that position, and so, the total used margin will go lower and therefore the margin level will go higher.

The broker’s system takes the margin level higher than 5% by closing the biggest losing position first.

However, if your other losing positions keep on losing and the margin level reaches 5% again, the system will close another losing position.

Why the broker closes your positions when the margin level reaches the Stop Out Level?

The reason is that the broker cannot allow you to lose more than the money you have deposited in your account.

The market can keep on going against you forever and you lose all the money you have in your account and then get a negative balance if nobody closes your losing positions.

If you don’t pay the negative balance, the broker has to pay it to the liquidity provider.

As it is almost impossible to take the loss from the trader, brokers close the losing positions when the margin level reaches the Stop Out Level, to protect themselves.

Cancelled By the Dealer:

Imagine you have some open positions and some pending orders at the same time

Then the market reaches where one of your pending orders are placed while you have no enough free margin in your account.

Therefore, the pending order will not be triggered or will become cancelled automatically.

This is called “Cancelled by the Dealer”.

The traders who don’t know what “cancelled by the dealer” is, will complain when they see that a pending order is cancelled or not triggered.

They think that the broker had not been able to carry their orders, because their liquidity providers had no enough liquidity or because the broker is a bad one.

But the the truth is that the pending orders could not be triggered or were cancelled because there was no enough free margin in the account.

You have to have free money in your account to take a new position. When you don’t, you can’t take any new positions.

There is a margin check that tests for what the MT4 account margin level will be after the trade is open.

If the the MT4 account margin level is within the acceptable limits, it let’s the trade through.

The threshold for measuring the post-trade margin ratio is set by the broker usually at 120%.

It means that the bridge will calculate what the used margin will be in the MT4 account after the new trade opens.

If the account equity is less than 120% of the post-trade used margin, the trade will fail margin check and will be automatically cancelled by the bridge MT4 dealer accounts.

Of course different brokers have different post-trade margin ratio settings, but it is usually 120%.

What Do You Have to Calculate on Your Own?

You don’t have to calculate any of the above parameters that I explained above, because the system calculates them automatically.

However, you have to know what they are and what they mean.

As I explained above, the only parameter that you have to calculate, is your position size that has to be calculated based on the stop loss size of the position you want to take, leverage, and the percentage of the risk you want to take in that position.

You can use our position size calculator to do that.

How to Check Your Account Balance, Equity, Margin and Margin Level?

You can see all of these parameters by checking the MT4 terminal.

Open the MT4 and press Ctrl+T.

The terminal will be opened and it shows your account balance, equity, margin, free margin and margin level.

This is how the terminal looks when you have no open position:

MT4 terminal when you have no open positions.

And this is how it looks when having an open position:

MT4 terminal when you have an open position.

This can be different in other platforms.

Balance will change only when you close a position.

The profit/loss will be added/deducted to the initial balance and the new balance will be displayed.

Balance – Floating Profit/Loss = Equity
$10,000 – $50 = $10,050

Margin = $2,859.52
(200,000 x 1.4300) / 100 = $2,860.00

Equity – Margin = Free Margin
$10,050 – $2,859.52 = $7,190.48

(Equity / Margin) x 100 = Margin Level
($10,050 / $2,859.52) x 100 = 351.46%

I hope you are not confused.

It is very easy to understand the above terms and parameters.

You may need to read the above explanations for a few times to completely digest the terms I explained.

Briefly and in Very Simple Words:

– Leverage:

Is the bonus you receive from the broker to become able to trade large amounts with having a small amount of money in your account.

When the leverage is 100:1, it means you can trade 100 times more than the money you have in your account.

Or, you can trade 100 units with one unit of you account balance.

– Required Margin:

Is the money that will be placed and locked in the positions that you take.

For example, to buy $1000 with the leverage of 100:1, $10 from your account will be locked in the position ($1000 / 100 = $10).

You can not use this $10 to take any other positions, as long as the position is still open.

If you close the position, the $10 margin will be released.

– Balance:

Is the total amount of the money you have in your account before taking any position.

When you have an open position and its profit/loss goes up and down as the market moves, your account balance is still the same as it was before taking the position.

If you close the position, the profit/loss of the position will be added to or deducted from your account balance, and the new account balance will be displayed.

– Equity:

Equity is your account balance plus the floating profit/loss of your open positions.

For example when you have an open position which is $500 in profit while your account balance is $5000, then your account equity is $5,500.

If you close this position, the $500 profit will be added to your account balance and so your account balance will become $5,500.

If it was a losing position with -$500 loss, then while it was opened, your account equity would be $4,500 and if you close it, $500 will be deducted from your account balance and so your account balance will be $4,500.

When you have no open positions, your account equity will be the same as your account balance.

– Free Margin:

Free margin is the money that is not engaged in any trade and you can use it to take more positions.

You remember what the margin or required margin was, right?

Free margin is the difference of the equity and the required margin.

In the above example, your position margin is $10.

Let’s say the equity is $1000.

Therefore, your free margin will be $990 ($1000 – $10).

If your open positions make money, the more they go to profit, the greater equity you will have, and so you will have more free margin.

– Margin Level:

Margin level is the ratio (%) of equity to margin.

For example, when the equity is $1000 and the margin is also $1000, margin level will be $1000 / $1000 = 1 or in fact 100%. If the equity was $2000, then the margin level would be 200%.

– Margin Call Level:

Is the level that if your margin level goes below, you will not be able to take any new positions.

It is the broker who determines the Margin Call Level.

When Margin Call Level setting is 100%, you will not be able to take any new positions if your margin level reaches 100%.

While having losing positions, your margin level goes down and becomes close to the margin call level.

When you have winning positions, your margin level goes up.

– Stop Out Level:

Is the level that if your margin level goes below, the system starts closing your losing positions.

It closes the biggest losing position first.

If this helps the margin level go above the stop out level, then it doesn’t close any more positions.

Then if your other losing positions keep on losing and the margin level goes below the stop out level again, the system closes another losing position which is the biggest open losing position.

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93 thoughts on “Leverage, Margin, Balance, Equity, Free Margin, Margin Call And Stop Out Level In Forex Trading
  1. naresh says:

    Greetings,

    thanks to the writer.
    he made it so easy.

    like it.

    regards

    naresh

  2. Houssin says:

    I would just like to thank you.

  3. Prem says:

    Good information to understand. Thanks

  4. Vladimir says:

    Thank you very much!!!

  5. Jyoti Dixit says:

    Nice explanation. Thanks for explaining in details and with examples.

  6. Ismail says:

    I was surching for some helpfull material to understand term. I found that this artical is very helpful and easy to understand for me. Thanks buddy.

  7. Chris says:

    Thank you so much. That really helped me a lot.

  8. Joshua says:

    Thanks Dr Chris

  9. Navpreet says:

    Can you please tell me if I trade with $1000 then is 400:1 leverage suitable for it?

  10. Mihai says:

    Can you please let me know how to calculate this for a account currency is Euro. For example i have a Euro account and want to open a long position on GBP/JPY. How can i calculate margin here ratio is 100:1

  11. cc says:

    This is the best explanation I’ve come across so far. Thanks heaps!

  12. Ashfaque Ahmed Mangrio says:

    Really there is lot of information and have easy way to understand. I think this is best where is lot of knowledge and better site.thanks

  13. Sam says:

    Great Article.

  14. Joy May says:

    I really am very thankful for this article. This made everything clearer to me now. Thanks much.

  15. M says:

    I am currently trading with a broker who leverage 1:500, should I close my account? I also have tried to contact him many times but get no feedback, however I still receive daily reports from him. Lately he has lost a lot of trades which worries me. Your advice would be appreciated.

  16. Martin says:

    What if I start a trade risking the whole account with balance equals equity equals margin right at the very beginning?

    So no free margin available. Can new positions/lots be added if the equity increases and thus free margin becomes greater zero?

    Thanks.

    • Chris says:

      Hi Martin, The answer is yes.

    • Armando Silvier says:

      This is a suicidal strategy for an idiot: transactions are automatically hedged by Metatrader and other ‘brokers’ (crooks) to flatten your account and liquidate you. Don’t hope by placing a stoploss you can save such a position: the brokers all hunt stops regularly and liquidate accounts this way too. Anyway, like i said it is a suicidal and idiotic ‘strategy.’ The way the systems work (Metatrader especially) is to apply logical algos to retail accounts on a regular basis (not constantly…only when conditions are optimal) in order to rapidly hedge the account (flatten it so that the broker has absolutely no risk exposure) by applying equal opposite trades to the ones you place, automatically until the account is liquidated through ‘margin calls.’ The entire thing is automated and you are helplessly enmeshed once you place a single order: your account will not survive unless you use many combined strategies to prevent the liquidation UNTIL such time as a ‘news release’ (bomb attack; psyop; fake news release) IN YOUR FAVOR comes out and your equity ‘recovers’ above the margin requirement or beyond. But the crooks who rigged the system know that it can be MONTHS before such ‘news’ happens and, in the meantime, they are charging you interest on rollover and spread commission. And that is not to mention the false price spikes they cause to liquidate clients, stop hunting, and numerous other methods to steal your money, just like the lying Jews in the Temple, whom Jesus chased into the dirt.

  17. Fayeq says:

    Hi Chis,

    Your explanation is very helpful and really I did all the mistakes you warned about and right now I’m losing USD 25,000!! The situation right now, the buying position equal the selling position and my account is on Margin Call.
    I need your advise what I should do? And how can I keep my account alive?

    Your prompt advise is appreciated, cause I have one weak to act otherwise my account will be wiped out.

    Regards,
    Fayeq

    • Chris says:

      Hi Fayeq. You mean you have hedged and you have taken a long and a short position of the same currency pair at the same time?

      How much is your total account balance?
      How much is your losing and winning position each?

      • Fayeq says:

        Hi,

        Not Hedging, what happened the positions I had reached a losses nearly equal my balance, the system made new positions equal the opened ones which makes the Equity and free Margin almost zero instead of closing positions one by one as you said.

        Right now, the balance is USD 22,650 same as total losses.

        Reg.,
        Fayeq

        • Chris says:

          Hi Fayeq,

          This is really strange, because how the system can take new positions while your losing position equals your account balance? There was no free margin in your account for taking any new position.

          I think you have nothing to lose now if you hold your positions. If you close, you will lose all you have in your balance. However, if you hold, then chances are the price turns around and you get out of this trap. If the price keeps on going against you, then you will lose no more than your balance which is already lost indeed.

          In spite of what I suggested, it is your own choice to close or hold your positions.

  18. Esteban says:

    Excellent! thank you

  19. hjDoom says:

    Very good and clear, Thanks

  20. codekiddy says:

    after 2 yrs, I reopened my bookmark to read this article again and refresh my knoweledge. it’s the best one on entry google.

  21. zawar says:

    very helpful…thanks

  22. agyusant says:

    hello chris,

    what is the best margin call and stop out level that should i take to be a good trader?

  23. Anowar says:

    Thanks for tutorial.

  24. Sergi says:

    I’m studying for an exam and there is a question related with this topic where they ask me about margin coverage and I don’t know how to arrive to the correct answer, please find the question below, apparently the false one is “2.”. Can somebody tell me how to get the margin coverage with the information they give me? Thanks!

    Which of the following is false?
    1. If the free margin is 293,701.2, the margin used is 7046, and the call level is 90, then the margin coverage is 4,258.3.
    2. If the free margin is 375,365.4, the margin used is 8616, and the call level is 85, then the margin coverage is 9,441.6.
    3. If the free margin is 548,598.5, the margin used is 2008, and the call level is 115, then the margin coverage is 27,435.6.
    4. If the free margin is 782,244.6, the margin used is 1485, and the call level is 100, then the margin coverage is 52,776.4.

  25. San says:

    Margin Coverage = Margin Level*100

    1. Free Margin = 293,701.20 ; Used Margin = 7046 ; Equity = Free Margin + Used Margin = 300,747.20 ; Margin Level = Equity/Used Margin = 42.68339483 %. Margin Coverage = 4268.3

    2. Free Margin = 375,365.40 ; Used Margin = 8616; Equity = 383,981.40 ; Margin Level = 44.56608635%. Margin Coverage = 4456.6

    3. Free Margin = 548,598.50 ; Used Margin = 2008; Equity = 550,606.50; Margin Level = 274.2064243 %. Margin Coverage = 27420.64

    4. Free Margin = 782,244.60 ; Used Margin = 1485 ; Equity = 783,729.60; Margin Level = 527.7640404; Margin Coverage = 52776.4

    Your correct answer is #4.

  26. Claude says:

    A little error in the text =>

    Margin = $2,859.52
    (200,000 x 1.4300) / 100 = $2,860.00 => this is not accurate

    The price is not the good one. 1.42976 (buy price) should have been taken (not the actual price: 1.43001) in the Margin calculation. (1.42976 x 200 000)/100 = 2859.52 as shown in the Trade section of MT4.

  27. Muktar Abduljalal says:

    I’m new to yet I find your minute contributions which are usually published on this site to be extraordinary. I’m about to start demo trading. All I have to say is thank you.
    Could you please explain what volume set to 0.01 lot (1000 unit) means when one is about to execute an order? I know there must be logic & probably a little arithmetic that govern it.

  28. Chandra Shekhar Das says:

    The most lucid style of explanation of some daunting jargons of. I owe you Chris.

  29. Sunilkrishan says:

    Dear Chris..!
    Thanks for your wonderful guide. I feel that I came to correct path after know you in LuckScout. Hopefully to go long journey with your brilliant way.

    Cheers.

  30. benatus says:

    With $25 what will be the leverage, trade percentage and lots size?

  31. CY says:

    Hi Chris,
    Could I understand as long as my risk is only target to 2% loss (maybe 0.01 position size because of small account) I am consider ok even with the with the high leverage account example: 500:1?

  32. Skye says:

    Best guide ever !

  33. Calvin Restar says:

    Hi Chris,

    This is the best guide I’ve read regarding with this matter. I have question, regarding Margin. Like you said margin is based on leverage calculation. I have 1:1 leverage with my demo account. I have 2 open position the EURCAD with the price 1.36000 and EURSGD with the price 1.49590 both with have the size of .01. My balance is 2515.42 and my Margin is 1134.61. I am computing it but my computation gives me a margin of 2855. I am quite confuse how you do it. Hope you can help me out with this. Thanks a lot.

    calvs

  34. Calvin Restar says:

    Hi there Chris,

    Yeah It’s in USD demo account. Oops my computation is still wrong, but still why is my account not reflecting the true computation. I’ve attached herewith a link of my account print screen so you can have a look what’s really wrong with my demo account. Thank you so much Chris.

    http://i57.tinypic.com/n1qsld.jpg

    http://i58.tinypic.com/2mph8ba.jpg

  35. Md. Saiful Islam says:

    This is the best explanation I’ve come across so far. Thanks Chriss.

  36. komois komois says:

    Dear Chris..!
    Thanks for your wonderful guide

  37. Hafeez ur Rehman says:

    Hi Chris,
    Thanks for wonderful article. I have referred this article to many people who have just stepped in.

    Please tell me that if I take a one lot XAU/USD with an account with the leverage of 400:1, how much margin will participate in the trade?

    Please confirm my calculations or correct or not?

    One lot XAU/USD = 100 Gold against USD
    XAU/USD rate: 1181.96
    100 x 1181.96 = 118,196.00

    Therefore:
    One lot XAU =$118,196.00

    Leverage: 400:1

    Margin = $118,196.00 / 400 = $295.49

    Therefore, to have a one lot XAU/USD position with a 400:1 account, $295.49 margin is needed.

    Thanks!

    • That is correct.

      Required margin for one lot gold:

      1 x 100 x 1175.96 x 1/400 = $293.99

    • Armando Silvier says:

      I sincerely hope you did not take that position, as GOLD is now down by more than $140 per ounce (courtesy of Morgan Stanley and Goldman Sachs’ HFT futures contracts) and you will have been liquidated. Unless you have at least $100,000 cash equity in the account.

  38. Bartosz Wawrzyniak says:

    Thank you Chris for that you are!
    I study “How to become profitbale trader in 5 easy steps” from two weeks, and I’m here. My english is very low, so I need to translate all articles with google dictionary and with my knowlagde about english. It’s hard to me, but im still motivated to learn, because you can expalin a lot of things better then books in Polish language. It is easier.

    Thank you for your knowledge and time. I follow LuckScout everyday. Have a nice day
    Regards BeQuiet from Poland.

  39. Nir Antman says:

    Hey Chris, what usualy is bigger in a proffesional trader account, the balance or the equity? what do you do when the margin is on the red? you need to close position?
    And last, how mt4 decide which trade to close in that case, thank you.

    • Nir,

      > what usualy is bigger in a proffesional trader account, the balance or the equity?

      Equity is usually bigger because they have several winning positions.

      > what do you do when the margin is on the red?

      It has never happened for me, because I manage my risks and positions sizes properly.

      > how mt4 decide which trade to close in that case

      It starts from the biggest losing position.

      • Nir Antman says:

        Thank you Chris!
        I learned a lot now.
        good to have you Chris.
        Have a great weekend 🙂

      • Nir Antman says:

        Hey Chris I see now that I didn’t ask the first question properly.
        the thing is this:
        I saw a live account with a balance of little more that 40,000$, the profit (not equity as I wrote before) was more than 100,000$, more than double of the account balance.
        I meant to ask if usually in a professional trader account does the floating profit or “profit” which is still running is usually that much bigger than the account balance?
        it really striked me to see how a trader manage her money to work for her. I never imagined a profit which is much bigger (more than double) from the account balance.
        hope now its more clear because the previous question phrasing is a little dumb :).
        Thank you

        • Nir,

          > I meant to ask if usually in a professional trader account does the floating profit or “profit” which is still running is usually that much bigger than the account balance?

          Yes, it is. They are used to hold their positions for a long time and many of their positions go to profit a lot. Therefore, the profit is sometimes higher than the balance, but please note that it happens after a long time, not within a week or a few months.

  40. surathala singh says:

    Chris

    Thank you for your lessons. But I confused about one thing.
    Let say I decide to open an account and choose to use 1:1 leverage when I register with a broker.

    To make it simple, lets say I deposit 1285 and buy 0.01 lot (micro lot) of EUR/USD at 1.2850. Then my account will look like this:
    Equity = $1285
    Margin (used) = $1285
    Free Margin = $0

    Is that correct? Please correct me if I’m wrong.
    But if I’m correct in that case, then it means by using 1:1 leverage I dont have any money left to mantain my positon?
    Also, my Equity will be equal to my Margin right from the start. If my broker use 100% Margin Call, is that means I will get margin call in the situation above? And, if the trade is floating minus, isnt it means that I can get stop out?

    This is really confusing. How come I get margin call while I still have more than enough Balance/ Equity to cover my losses. I hope I dont make you confuse and you get my point.

    • Surathala,

      When you get margin call, you will not be able to take any new positions, but your positions will not be closed. Usually the stop out level is set in the way that your position will not be closed as long as you have money in your account.

      Please read the above article one more time.

      • Armando Silvier says:

        This is not true: once your TOTAL EQUITY for ALL POSITIONS or the SINGLE TRADE EQUITY FOR A SINGLE POSITION dollar value (or Euro, whatever) reaches 20% of the MARGIN/EQUITY, *ALL* positions held in the account will be automatically closed, starting with the largest trade which will hit 20% first (there is no such thing as ‘the largest trade by percentage that hits 20%, followed by the next largest trade that hits 20%). Please explain this properly to retail speculators who know nothing about how MMs automatically liquidate positions in Metatrader from their initial trade.

  41. melusi lunga says:

    Thank you Chris and LuckScout team , this is bigger than life !!!,

    This is priceless , I did found it very difficult to understand Margin even insta failed to make me understand it.

    Thanks

  42. melusi lunga says:

    Good morning Chris

    I have one question regarding Margin , let’s assume I have 3 open trades please refer to the example below:

    USDJPY Long @ 0.09 lot
    GPBUSD Long @ 0.09 lot
    EURAUD Short @ 0.05 lot

    The total margin for the above trades I assume to be $13.99 , if all these trades go against me and loose $2 each , in total a lose of $6. What will happen to the margin of $13.99? Is it gonna be gone too or the broker will release it back to my account?

    Thank you LuckScout

  43. Paul Thompson says:

    Hi, Chris

    Something happened to me the other day and I’m wondering if you could lend an explanation. Typically, I submit pending orders for two positions with the same lot size. One with a take profit (t/p) 3 to 5x and the other with no t/p so that I can allow my winning position to run. On this occasion, however, I used a market order for my first position but when I went to open my second position, I found that my balance was already fully employed. It was the only position open at the time, so there were no other open positions to take away from my available funds. Is this typical? I’m trying to get away from pending orders, but in my first attempt of using a market order, I found myself frustrated. What do you think happened and how can I correct this so that I don’t run into the same problem again? Should I divide my free margin in two and apply 1/2 of my risked amount into two position? Any advice you could give would be greatly appreciated, sir. And I thank you ahead of time for your response.

  44. Armando Silvier says:

    The MAJOR ITEM NOT EXPLAINED IN THIS ARTICLE is this: you will get a margin call NOT based on the calculation above, which is INACCURATE AND INCOMPLETE. The principal reason you WILL get a margin call is the that the software you are using (usually Metatrader) is controlled and created by the Kosher Nostra in Russia. This platform trades DIRECTLY against your puny account, until you are wiped out. Do not feel that this is unfair: you decided to GIVE these diabolical pieces of SHIT your money when you signed up! I repeat: the moment you place a ‘trade,’ Metatrader ‘brokers'(actually to be correct, it is the owner of the Metatrader software license; and the server to which your account is registered — likely in Israel or the Cayman’s or something, who is the ‘broker’) immediately hedge your transaction to flatten your account. This means that your ‘trade’ is automatically hedged in real time (the software places an equivalent opposite transaction against your account, on the other side of the ‘server’ which of course, you will never see). The SECOND reason you WILL get margin called (although it can take months in some cases, if you work hard to prevent it) is that your LOT SIZE per transaction is too large. For example, if you place a single TEN LOT order, you will get a margin call once the ‘market’ (which doesn’t actually exist here: all Metatrader accounts are traded only against each other and hedged by the broker against their banksters’ infinite liquidity pool) goes ‘against’ you sufficiently that your equity drops below the margin required by exactly 80%. HOWEVER if you instead place 10×1 LOTS at the SAME price, Metatrader cannot margin you out in a margin call against the TOTAL EQUITY ON A SINGLE TRANSACTION because the 80% level will NOT be reached on any of the individual transactions. Instead, you will be margined out based on the TOTAL EQUITY dropping below the required margin. This is a subtle difference but it means that if you place 10×1 lot orders instead of a single 10 lot order, it will be much longer before you will be margined out because it is much harder for the ‘broker’ (crook) to deflate your account equity and cause a margin call on any 1 lot transaction than on a single 10 lot transaction. Secondly, if you add equity (top up) the account which is 10×1 lots, it could take MONTHS for the ‘broker’ (liar and thief) to deflate your TOTAL account equity, for the same reason. I haven’t explained this well but I hope you understand: KEEP YOUR TRANSACTION SIZES SMALL, MONITOR THE ACCOUNT EQUITY AND MARGIN CAREFULLY AND ENSURE THAT TOTAL EQUITY AND PER TRANSACTION EQUITY NEVER DROPS BELOW 50%. Doing this should allow the majority of retail traders to buckle the entire Metatrader mafia and destroy it.

  45. Armando Silvier says:

    *The Margin required equals exactly 19.9999% of the Equity remaining.

  46. David Viloria says:

    Hi Chris,
    I have been searching for a formula to calculate Free margin that includes hedge trades.
    do you have a general formula for Free margin +/- hedge position? because I’ve noticed that when I hedge a position on some brokers, Free margin increase. but then, when I hedge a position with other brokers, the Free margin stays the same or increase a little bit.

  47. Ivan Todorov says:

    thumbs up

  48. Reza Samimi says:

    Great article Chris!
    that was clear on all sections ….
    I will surely apply my knowledge from this article while I am trading on my demo account ,and will get back to you if I got any question.
    Many Thanks

  49. sebastian odena says:

    I don’t understand why leverage is important. If I trade a microlot and put a SL of 2% of my balance, what changes if my leverage is 1:50 or 1:500?
    The pip price doesn’t change, the only thing that changes is my margin. With bigger leverage I require less margin and can make more trades.
    I don’t know why is risky to have higher leverage

    • > If I trade a microlot and put a SL of 2% of my balance, what changes if my leverage is 1:50 or 1:500?

      You are right. No changes.

      Leverage is not that important. It is only a problem for novice traders who take so many positions.

  50. sebastian odena says:

    Thanks Chris, I was 99% sure but needed some confirmation.

    I’ve been browsing this site almost 4 hours a day the last couple of weeks and found invaluable information. I’m sure if I follow the “system” I can’t fail very badly. I have some issues with the “patience” part but trying to address it.

    I’m very grateful for sharing your knowledge and experience with everybody.

    By the way, I just signed up with a broker that uses CTrader platform which I found much friendly than MT4. I know experienced traders will never consider to switch to another trading platform but I recommend it for newcommers.

    For instance, you can set up a trade to take profits in steps. 1) 50 pips gain -> 0.001 lot TP , 2) 100 pips gain >0.001 TP etc
    And also you can move your stop loss automatically to break even at certain pips gain. Something that you posted somewhere that you do it manually.

  51. Mauer C says:

    As we have learnt the minimum size to enter a trade is 10k units.
    Does it mean that I have to buy 10k units or do I pay with 10k units?
    I mean like this:
    If I want to enter BUY in EUR/USD, do I need to buy €10,000 with about $10,832 or can I buy euro with $10,000?

    Hope you understand my question.

  52. S Aaberg says:

    Thanks for a good article, and thanks for all the comments.

    I started to demo trade, doing my best to stick to the rules of money management/ calculating risk, stop loss etc.

    Of course my goal is to be consistently profitable in demo mode and switch to real $ eventually. Therefore I choose 1:100 and 0.1 lots minimum.

    However, I know it’s a huge no-no to discuss specific brokers in here, and I understand why. But can someone tell me weather consistently profitable traders use MT, or do I need to look elsewhere?

    I might as well start training with the right choice of platform, right from the start.

    Thanks on beforehand. God bless you all.

  53. Maurice Parchment says:

    Greatly appreciated article. Clear and very understanding.

  54. Ben Aqiba says:

    Hi Chris,

    great article.When we measure pips distance with one pairs who have 3,4 decimal we don’t need to divide it with ten,right ?

    Thank you

    • LuckScout says:

      Hi Ben,

      With prices like 1.1234 as EUR/USD and prices like 113.12 as USD/JPY, you don’t have to divide to 10. But they become like 1.12345 and 113.123, you have to.

  55. Anil says:

    Knowledgeable information. Keep going and helping to understand trade market.

  56. Nara Victor says:

    The most clear and clean explanation so far concerning the subject matter of . Thanks alot Chris.

  57. Ray says:

    Hi Chris
    Thanks for the article.
    Hopefully you can help me. I have invested a total of $3000 dollars, I have a balance of $3800 at the moment and I’m not trading. I have asked my broker to close my account and she said that i have a $2000 dollar leverage and that if i were to close my account know i will only get $1800 back.

  58. Ray says:

    Yes that is correct.

  59. Ray says:

    Thanks. You have been very helpful. Have a great weekend.
    Cheers.

  60. Awdjs says:

    Very well explained, exactly what im searching for. Thank you a lot.

  61. b says:

    VERY good simple explanation specially i am no good for calculate i like the way calculate automatically….i searched 10 sites about leverage and margin requirements but didn’t clearly understood.
    Now i can use this website calculator
    Thank you author …

  62. Rayhan says:

    Did you wrote any article about news analysis ??? if so, please give me the link.

    thanks,

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