What Is Margin? | FXTM Learn Forex in 60 Seconds

What Is Margin? | FXTM Learn Forex in 60 Seconds


Now that we have understood the concept of leverage in forex, let’s talk about margin. Since a trader is allowed to use more capital than the amount he or she deposited, the broker requires an amount of funds to cover any potential losses. This amount is what we call margin. See it as a good faith deposit, represented as a percentage. It is the amount you need to have in your account in order to keep a position open. Let’s look at this example. A trader deposits $20,000 in an account with leverage 1:25. The broker has set the margin at 4%. What does this mean? If the trader buys 2 Lots of EURUSD at 1.2000, you can calculate the Margin like this. He must have $9,600 in his account in order to keep his open position. Simple! We’ll be getting into Balance and Equity next before we come back to Margin, so stay tuned!

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