Margin
Margin refers to client’s contribution as a percentage of the transaction
value (as a “good faith deposit”) to open a position.
Leverage
Leverage allows large investments with a small personal contribution. The
leverage is calculated as a percentage between the margin and the
transaction value.
Types of leverage: 1:100, 1:200, 1:500, 1:50, 1:20, 1:1
The leverage chosen will define the required margin as shown below:
| Leverage Level |
Transaction Value |
Required Margin |
Margin % |
| 1:100 |
100’000 |
1’000 |
1% |
| 1:200 |
100’000 |
500 |
0.5% |
| 1:500 |
100’000 |
200 |
0.2% |
| 1:50 |
100’000 |
2’000 |
2% |
| 1:20 |
100’000 |
5’000 |
50% |
| 1:1 |
100’000 |
100’000 (full investment) |
100% |
Margin Call
Useful terms to help you better understand what Margin Call refers to:
Balance: state of your account excluding open
positions
Equity: Balance + Floating Profit/Loss
Free margin: Equity – Margin
Margin level: Equity/Margin x 100
The Margin Call will depend on the conditions applied by each broker.
If the Margin Call is set to 50%, it means that when the margin level (%)
drops down to 50%, all your open positions will be automatically closed.
For example:
Your account balance is 2’000 USD and you open a position with 100’000 units
using a leverage level of 1:100. Your balance will show 2’000 USD, equity
2’000 USD + Profit/Loss, Margin will show 1’000 USD, Margin Level will show
200%.
If the market goes against you and your losses amount to 1’500 USD, your
margin level will drop to 50%. This will trigger the Margin Call and the
system will automatically close your positions:
| Balance |
Equity |
Margin |
Free margin |
Margin level |
Profit/Loss |
| 2’000 |
2’000 |
1’000 |
1’000 |
200% |
|
| 2’000 |
500 |
1’000 |
0 |
50% |
-1’500 |
Margin Level = Equity / Margin x 100 = 500/1’000 x 100 = 50%