1. This site uses cookies. By continuing to use this site, you are agreeing to our use of cookies. Learn More.

Chapter 34, Part I. A Bit More About Leverage. Page 5

Discussion in 'Complete Trading Education- Forex Military School' started by Sive Morten, Dec 28, 2013.

Thread Status:
Not open for further replies.
  1. Sive Morten

    Sive Morten Special Consultant to the FPA

    Joined:
    Aug 28, 2009
    Messages:
    11,363
    Likes Received:
    14,513
    Commander in Pips: Right you are. I just want to add some another terms with margins. Some software shows such terms as:

    - Margin required – that is the same as initial margin;

    - Total margin or account margin – total margin that you have at your disposal;

    - Used margin – sum that was reserved as collateral for current open positions;

    - Usable margin – this is difference between Total margin and used margin.

    Not all of them are used simultaneously, but sometimes we can see some of these terms. For example, Metatrade 4 – well known software also shows “Margin level”. This stat changes over time and shows the ratio Account Equity/Used margin.

    Pipruit:
    Hm, this is something new. Could you give a bit more clarification with it?

    Commander in Pips: Ok, let’s pass through it.

    First of all, let’s say that you’ve just opened account with some broker in EUR. Your initial deposit 5000 EUR and broker allows you to use as much as 100:1 margin. Then, right at the moment when your assets just were deposited on account you will see the following statement by software:

    Action Account Balance Total Equity Flow Profit/Loss Used Margin 100:1 Usable Margin
    -5000 € 5000 € - € - € 5000 €

    You’re just starting itching to start. Finally, you’ve found nice context to open with 1 lot of some pair. Then statement has changed:

    Action Account Balance Total Equity Flow Profit/Loss Used Margin 100:1 Usable Margin
    -5000 € 5000 € - € - € 5000 €
    +1 Lot
    -5000 € 5000 € - € 1000 € 4000 €
    You can see, that broker has applied the level of margin that it has promised to you, and set aside as collateral 1000 EUR. So your usable margin has reduced to just 4000 EUR. At the same time, not too much time has passed, so you do not have any Flow Profit/Loss (also known as Floating Profit/Loss) on your position. Later you start to see, that the market is moving against you and statement has changed due to this reason:

    Account Balance Total Equity Flow Profit/Loss Used Margin 100:1 Usable Margin
    5000 € 4650 € 350 € 1000 € 3650 €
    How this could happen?



    Pipruit:
    Well, I suppose that:

    Usable Margin = Total Equity – Used Margin or

    Usable Margin = Account Balance + Flow Profit – Flow Loss – Used Margin
     
Thread Status:
Not open for further replies.

Share This Page