Margin is the collateral required in your account to open and maintain a leveraged trade. It ensures you have enough funds to cover potential losses during market volatility.
Here are some key concepts related to Margin:
1. Initial Margin: The minimum balance required in Traders' accounts to open a trade.
Example: If a trader wants to open a position of $10,000 with 1:50 leverage, the Initial Margin would be: $10,000 ÷ 50 = $200
So, the trader needs at least $200 in their account to open this trade.
2. Free Margin (usable Margin): The amount available in Traders' accounts to open more trades. It allows traders to withstand market movements before reaching a Margin Call.
Formula: Free Margin = Equity* – Open Positions (*equity = Balance ± PnL).
3. Variation Margin: The Unrealized Profit or Loss on Open Positions.
4. Margin Level: Indicates the health of traders' accounts, expressed as a percentage.
Margin Level = (equity x 100) / Margin.
5. Total Margin Requirement: The sum of the initial and variation margins, which must be maintained in traders' accounts at all times.