Forex Margin Explained
Along with terms such as leverage and lots, one of the most used terms in Forex markets is the margin. What is margin is a frequently asked question and is an often confusing concept. Margin, which means collateral, is used in the forex market with different terms. While the amount used to open a position is called the starting margin, we understand how much more we can open a position by looking at our money, which appears in the free margin.
How to Calculate Forex Margin Level?
Margin calculation, in other words, the margin level is one of the important points to be considered in the forex market. We find our margin level by proportioning the asset / free margin. When this level is below 75%, a margin call comes, and when it is below 30%, the system starts to close our positions automatically, provided that it starts from the most harmful position. In Forex markets, when a margin call warning is received, it is not necessary to complete collateral.
The amount of collateral required to move a position is expressed as used margin. The amount of collateral required to open any position is blocked by the system as soon as the position is opened. Collateral, which cannot be used as long as the position is moved, is released from the moment the position is closed. No transaction can be made with the collateral blocked during the period the position remains open.
Depending on the position carried in the account, the amount remaining from the balance other than the blocked collateral is expressed as Usable Margin (Free Margin).
What Is Forex Margin Call?
It is possible to trade in both upward and downward directions in the Forex market. With the expectation of a decrease, the sale can open a buy position with the expectation of a rise and income can be obtained in both cases, but if the price does not move in the direction of the expectation, the position carried may go to negative. If the carried position goes negative, it may be faced with the melting of the collateral. In this case, a warning is made by the system under the name of Margin call to inform that the minimum amount required in the account has been decreased. The meaning of this call is that the position is approaching the stop out point at which it will be closed automatically. In short, it is the melting of the collateral required to carry the position. The margin level of each instrument and each symbol can be different.
What Is Forex Stop Out?
Stop out the concept in Forex markets; It is a situation experienced when a certain percentage of the collateral used remains assets. In other words, it can be explained as Asset / Used Margin. To give an example; Suppose we open a position with a 1,000 USD balance and 1,000 initial margins. In this case, our Asset / Used Collateral ratio will appear as 100%. The stop out level is 30% at QNB Finansinvest. In the example above, if our asset, which was USD 1,000, drops to USD 500, our Asset / Used Margin level will be 30% and our most losing position will automatically stop out.
SEE MORE: What Is Forex Trading? A Complete Guide to Forex Trading
