Margin is the minimum deposit required to place a trade.
Without sufficient margin, you will not be able to open certain positions.
Keep in mind that margin is not a cost of trading, but a portion of funds set aside to be able to open a position.
Account balance
This is the total amount of money you have in your trading account.
Required Margin
This is the amount of margin that is required in order to open a specific position.
Used Margin
This is ALL the margin that is currently being used to keep active all of your open positions.
Free Margin
This is the remaining amount of money that is still available to be used to open new positions.
Margin Call
This is a notification from your broker that your used margin (required to keep open your positions) is heading into negative territory; where funds have been depleted to maintain open positions.
This negative territory slightly varies from broker-to-broker. However, a margin call usually occurs when a trader comes close to losing all of their Free Margin.
How much margin is required to open a certain position?
The answer to this depends on what leverage you are using. We will be learning more about leverage in the next lesson!
BONUS:
Sometimes a traders position may be automatically closed by a broker. This occurs as the broker may want to protect the trader from losing more cash than they have in their account… This shows just how crucial margin is to Forex traders.
LESSON SUMMARY:
- Margin is the minimum deposit required to place a trade.
- Without sufficient margin, you will not be able to open certain positions.
