Margin is the amount of money traders need in their accounts to open a trade. It allows traders to take positions of higher value than their account balance in Forex and CFD trading. Margin ensures funds are available to cover potential losses during market volatility. The term “margin” is often used interchangeably with "leverage."
Here are some key concepts related to Margin:
1. Initial Margin: The minimum balance required in Traders' accounts to open a 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.