Here we will create glossary forex of the term in margin trading.
In the previous article, we learned about margin trading 101, but maybe there is still a foreign term so that beginners find it difficult to understand the term.
Some languages may still not be understood, so it is quite difficult when they find these terms in forex forums.
Following below we try to compile glossary forex in the margin trading chapter so that beginners are easy to understand.
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The Margin definition in glossary forex is money that you must deposit a certain amount on your trading platform to make orders and maintain positions in the forex market.
Margin is used by brokers as collateral to ensure you can cover losses when you get a loss.
Definition Leverage is the ability to trade on a large number but using smaller funds.
Another meaning of leverage is the use of loan funds to increase the potential return of an investment.
Leverage in forex is usually displayed in the form of certain proportions, for example, 1:50, 1: 100, 1: 200, and so on.
Definition Unrealized profit/loss is the current condition of floating profit or loss due to open positions.
Unrealized profit/loss is also called Floating profit/loss.
Account Balance is the total amount of cash that you have in your trading account.
If you have an open position, even though you have a floating profit or loss, your Balance account is still the same as before you opened the position.
But once you close a position, a profit or loss will be added from your Balance and this will become your new Balance.
This account balance can also be called a balance, and there is also a mention in cash.
Margin Requirements is the amount of margin needed to open a position.
This margin requirement is expressed as a percentage (%) of the size of the full position or Notional Value of the position you want to open.
Definition Required Margin is money that is set aside and locked by the broker when you open a trade.
For example, if you open 1 mini lot or a position of $ 10,000 with a Margin Required of 2% or leverage of 50: 1, $ 200 will be set aside and locked by the broker for the duration of the trade.
This $ 200 cannot be used to open other positions while a trading position is open.
Other terms with the same meaning that used are
- Initial Margin.
- Initial Entry Margin.
- Entry Margin.
- Maintenance Margin Required (MMR).
How to calculate the required margin
If the base currency is the same as the currency account.
Required Margin value = Notional Value x Margin Requirement
If the base currency is different from the currency account, the formula is
Required Margin value = Notional Value x Margin Requirement x Exchange Rate Between Base Currency and Account Current
The definition used Margin is the total required margin that must be maintained in a margin account, this used margin is the total margin currently used to maintain open positions.
Used margins are also referred to by other languages as follows:
- Total Margin
- Margin Used
- Maintenance Margin Required (MMR)
How do you calculate the used margin?
The way to calculate it is to count all the total required margin for all positions
Used Margin value = Total Required Margin for ALL Open Positions
Definition equity is the total balance of your account plus floating profit/loss from all your open positions. The total amount displayed is a trading account realtime balance.
Equity is also referred to by other languages as follows:
- Net Equity.
- Account Equity.
- Net Asset Value.
How do you calculate equity?
If you have an open position the formula is.
Equity value =Account Balance + Floating Profit/Loss
If you don’t have an open position then equity is equal to balance.
Equity value = Account Balance
Definition free margin is money that is free or in other words is not locked by the broker because the position is open and can be used to open new positions.
When this value is zero or less, you cannot open a new position.
Other languages with the same meaning as free margin are as follows:
- Usable Maintenance Margin.
- Available Margin.
- Usable Margin.
- Available to Trade.
How do you calculate the free margin?
Free Margin value = Equity value - Used Margin
Margin Level is a ratio or comparison between total equity and used margin, The margin level is expressed as a percentage.
For example, your total equity is $ 5,000 and the margin used is $ 1,000, then the percentage margin level is 500%.
Other languages that have the same meaning are:
- Margin Indicator.
How do you calculate the margin level?
To calculate the margin level using total equity data divided by the used margin multiplied by 100%.
If it is written in the formula, it will be as below:
Margin Level perecentage = (Equity / Used Margin) x 100%
Margin call level
Margin call level is a specific level in percent (%) which is a broker’s policy where if your margin level is the same or below, you will not be able to open a new position.
Your brokers that determine the Margin Call Level.
For example, if the Margin Call Level is 100%, it means that if the Margin Level has reached the 100% limit, you cannot open any new positions.
At this point, your account is now under Margin Call.
Most newbies assume this means their trade will be closed at this level, but that is not true. Margin Call Level is just a warning.
Other languages that used are:
- Minimum Required Margin.
- Minimum Margin Requirement.
How do you calculate the margin call level?
The margin call level is determined by the broker in a service agreement that is set with a value in percent (%).
Margin Call Level value = Margin Level at X%
Stop out level
Definition Stop Out level is a specific level in percent (%) which is the broker’s policy where if your Margin Level is the same or below, your broker will automatically start closing your position until the Margin Level is greater than the Stop Out Level.
For example, the broker’s has a policy for Stop Out level is 50%.
This means that if the Margin Level falls below 50%, Stop Out will automatically occur and the floating position at the biggest loss will be liquidated automatically.
This process will be repeated until the Margin Level rises to a level above 50%.
Other languages that have the same meaning are:
- Minimum Required Margin.
- Margin Closeout.
- Margin Close Out (MCO).
- Liquidation Margin.
How do you calculate the stop out level?
Depending on brokerage company policy, the stop out level is the threshold for your account to be liquidated automatically according to the broker’s policy.
Stop Out Level value = Margin Level at X%
Margin Call account
The definition of a margin call is when the broker gives a warning that your margin level has reached the margin call level limit but is still above the stop out level.
Before the margin level reaches the stop out level your position is still open but you cannot open a new position anymore.
Stop out account
The definition of stop out is when the account margin level has reached the stop out level which is at the broker’s policy.
This condition is the worst condition where your position will be automatically liquidated by the broker.
Knowing the glossary forex of terms in forex will provide convenience on how to treat your trade.
The discussion on margin 101 has been completed then will next study the next chapter about broker 101.
By studying the glossary forex of terms in the forex margin at least when you find the terms in the discussion in the forex forum will facilitate your understanding to interact with fellow traders.