Forex Margin Calculator

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Lots, leverage and margin are all pretty boring subjects. One exception to this rule is traders from the U. Spread betting usually works differently. In forex buying power calculator previous article you learned what a pip is and how to calculate the value of a pip. To open a trade, you need to buy or sell one or more lots. Nano and micro lots are a fantastic way to trade Forex without risking much money.

When you first start trading, you do not want to be trading standard lots. Micro lots allow you to learn Forex without risking the house. Now you can calculate the value of a pip per lot. The pip value we calculated in the previous article was based on a single unit.

Calculating how much forex buying power calculator will make per pip on a trade is straight forward. If the US dollar is not quoted first and you want the pip value in US dollars, the formula is a little different. Leverage allows you to trade more units than you have. In this case, you would have The important thing to remember about leverage is that it does not affect the value of a lot. You know that a mini-lot is 10, units of currency and a standard lot isunits.

The value of these never changes no matter what your leverage is. If you have Leverage does not affect the value of a lot but has an effect on the number of lots you can have in the market, based on the capital in your account.

The reason they call it leverage is because it is much like trying to lift a very heavy object. Some objects are just too heavy to lift. Leverage may sound great, but it can cause problems too. The higher your leverage the more of your capital you can risk at one time, in comparison to a lower leverage. The forex buying power calculator with Trader 1 takes a long position at Trader 2 takes the same long position at Since Trader 1 has Since Trader 2 has Leverage be extremely dangerous.

You need to be very careful with leverage. In the end though, you are the one that determines the degree of your leverage. Your forex buying power calculator can only determine the maximum leverage allowed. If forex buying power calculator choose to use the maximum that is up to you.

Margin is a good faith deposit required by your Forex broker to cover the position you have entered into the market. Without providing this margin, you would be unable to use leverage as this is what your broker uses to maintain your position, and to cover any potential losses. Different brokers will insist on different levels of margin depending on a number of factors such as the currency pair you are trading and the leverage of your account.

The currency pair you are trading is a factor in how much margin is required because each currency pair moves different. This means the margin required to trade those currencies is likely to be higher.

Also since margin is normally quoted in percentage terms, such as 0. The easiest way to think of margin is that it is the 1 in the leverage ratio. So for instance, if your leverage is forex buying power calculator This will dictate how much you can place in the Forex market.

A margin call is what happens when you have no money left in your account. To protect you from losing more money than you have your broker forex buying power calculator out your positions.

This forex buying power calculator you can never lose more money than you have in your account. The amount of money in your account that is currently used in open trades. The amount forex buying power calculator money in your account minus any open trades. We will continue from the same examples used above.

With good money management this should never happen but newbies can slip up. Tom curses himself for taking a long but he keeps the position open. If Tom keeps the position open and it moves too far against him he will get a margin call. This protects Tom from losing more money than he has in his account.

Margin calls are easily avoided if you trade sensibly. However, this is more advanced stuff that you will learn later in the free Forex course. It is very important that you check what the margin polices are with your broker. Margin policies can differ from broker to broker so if you plan to open an account remember to ask. What is a lot in forex? However, there are several different lot sizes in Forex: Calculate the per unit value of a pip.

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Although most trading platforms calculate profits and losses, used margin and useable margin, and account totals, it helps to understand how these things are calculated so that you can plan transactions and can determine what your potential profit or loss could be. Most forex brokers allow a very high leverage ratio, or, to put it differently, have very low margin requirements. This is why profits and losses can be so great in forex trading even though the actual prices of the currencies themselves do not change all that much—certainly not like stocks.

Stocks can double or triple in price, or fall to zero; currency never does. Because currency prices do not vary substantially, much lower margin requirements is less risky than it would be for stocks. Before , most brokers allowed substantial leverage ratios, sometimes up to Such leverage ratios are still sometimes advertised by offshore brokers. However, in , US regulations limited the ratio to Since then, the allowed ratio for US customers has been reduced even further, to The purpose of restricting the leverage ratio is to limit the risk.

The margin in a forex account is often referred to as a performance bond , because it is not borrowed money but only the amount of equity needed to ensure that you can cover your losses.

In most forex transactions, nothing is actually being bought or sold, only the agreements to buy or sell are exchanged, so borrowing is unnecessary.

Thus, no interest is charged for using leverage. Thus, buying or selling currency is like buying or selling futures rather than stocks. The margin requirement can be met not only with money, but also with profitable open positions. The equity in your account is the total amount of cash and the amount of unrealized profits in your open positions minus the losses in your open positions.

Your total equity determines how much margin you have left, and if you have open positions, total equity will vary continuously as market prices change. In most cases, however, the broker will simply close out your largest money-losing positions until the required margin has been restored.

The leverage ratio is based on the notional value of the contract, using the value of the base currency, which is usually the domestic currency. Often, only the leverage is quoted, since the denominator of the leverage ratio is always 1. The amount of leverage that the broker allows determines the amount of margin that you must maintain. Leverage is inversely proportional to margin, which can be summarized by the following 2 formulas:.

To calculate the amount of margin used, multiply the size of the trade by the margin percentage. Subtracting the margin used for all trades from the remaining equity in your account yields the amount of margin that you have left. You want to buy , Euros EUR with a current price of 1. How many more Euros could you buy? In most cases, a pip is equal to. Because the quote currency of a currency pair is the quoted price hence, the name , the value of the pip is in the quote currency.

If the conversion rate for Euros to dollars is 1. To calculate your profits and losses in pips to your native currency, you must convert the pip value to your native currency. When you close a trade, the profit or loss is initially expressed in the pip value of the quote currency. To determine the total profit or loss, you must multiply the pip difference between the open price and closing price by the number of units of currency traded. This yields the total pip difference between the opening and closing transaction.

If the pip value is in your native currency, then no further calculations are needed to find your profit or loss, but if the pip value is not in your native currency, then it must be converted. There are several ways to convert your profit or loss from the quote currency to your native currency. If you have a currency quote where your native currency is the base currency, then you divide the pip value by the exchange rate; if the other currency is the base currency, then you multiply the pip value by the exchange rate.

Subsequently, you sell your Canadian dollars when the conversion rate reaches 1. For a cross currency pair not involving USD, the pip value must be converted by the rate that was applicable at the time of the closing transaction. If the margin is 0.