Margin is defined as the amount of collateral needed in your account to cover any credit risks arising during your trading operations using leverage.
Margin is an important concept in trading and it is directly related to leverage. Leverage is a facility offered by EFXglobal that enables you to gain a larger exposure in the market while only reserving a relatively small amount of your capital. When you invest in a leveraged product, the margin is a sum representing a fraction of the total value of your position, however your profit or loss is based on the full amount of the leveraged position. When trading with leverage, a portion of your account equity is set aside as a margin deposit. Margin is not a fee or a transaction cost, it is collateral to cover credit risks arising from your use of leverage. It is important to understand that trading with leverage can greatly increase the profitability of a trade or subsequently magnify its losses.
Monitoring Your Margin Level
At EFXglobal you may control your real time risk exposure by monitoring your used and free margin levels inside your account. Used margin refers to the amount of your capital required to sustain a trading position that you have entered. For example, if your account is set at a leverage of 1:100, the margin that is reserved is 1% of your trade size. Free margin refers to the amount of capital remaining in your trading account and it fluctuates according to your account equity. You may open additional positions with your free margin level and your free margin would also act to absorb any trading losses. Used margin and free margin together make up your account equity.
Margin Calls and Stop Out Levels
Although each client is fully responsible for monitoring their trading account activity, EFXglobal follows a margin call policy to guarantee that your maximum possible risk does not exceed your account equity.
As soon as your account equity drops to the Margin Call level, we will notify you with a margin call warning indicating that you that you do not have sufficient equity to support your open positions.
The stop out level refers to the equity level at which your open positions will be automatically closed.
When your account has open positions and it’s margin level drops to the margin call level of the account, you will receive a margin call warning through the trading platform. The account summary in the terminal section of the trading platform will turn red. If the margin level continues to drop and reaches the stop out level of the account, the trading platform will start closing your positions at market execution price. You should always ensure that you have enough margin available in your account.
At the stop out level, the platform will start closing open positions automatically starting from the most unprofitable position. If the margin level has not recovered, the platform continues to close positions automatically starting with the most unprofitable position until your margin level has recovered.
How is the Margin Level in my Account Calculated?
The following formula calculates your margin level as a percentage.
Margin Level = Equity / Margin Used X 100
How Do I Calculate the Margin Needed to Open a Position?
The formula in order to calculate the margin needed to open a position is:
Notional value / Leverage
Example: For 1 lot of EUR/USD and using 1:500 Leverage:
50,000 EUR / 500 = 50 EUR = Margin needed to open a position.
How is the Free Margin in My Account Calculated?
The free margin in your account is calculated by subtracting the margin that you have used already to open your positions from the equity on your account.
Formula: Free Margin = Equity – Used Margin
How is the Equity Calculated on My Trading Account?
Your account equity is calculated as follows:
Equity = Balance + Credit + Profit / loss + Swap + Commission
For FX Trading at EFXglobal, the Margin Calculation Works as Follows:
Required Margin = Trade Size / Leverage * times the account currency exchange rate. ( if this is different from the base currency of the pair traded, in the below example if the base currency of you account was EUR, then you would multiply by 1 )
EXAMPLE: You trade 3 lots of EUR/USD using 1:200 leverage with an account denominated in USD.
- Trade size: 300,000
- Account currency exchange rate: 1.0900
- Required Margin = 300,000 ( / ) divided by 200 = 1,500
- 1,500 ( * ) times 1.0900 = $1,635.00
- $1,635.00 would be the margin requirement in this example.
You would be required to maintain an account balance over $1,635 in order to maintain this position.
When Trading Metals at EFXglobal, the Margin Calculation Works as Follows:
Required Margin = Trade Size (0z) / Leverage * Market Price
EXAMPLE: You trade 1 lot (100 Oz) of GOLD (XAU) using 1:200 leverage with an account denominated in USD.
- Trade size = 100 Oz
- Market price = 1210.00
- Required Margin: 100 / 200 * 1235.90 = $605.00
- $605.00 would be the margin requirement in this example.
You would be required to maintain an account balance over $605.00 in order to maintain this position.
Please note that limiting leverage by itself does not mitigate risk. Only stop loss or draw down limit settings can control risk. Stop loss and limit orders, trailing stop orders, contingent orders and the ability to hedge are risk management tools to help you manage the risk of your market exposure.
Negative balance protection and auto closeout
Negative balance protection is a built in feature on our MT4 system that helps users minimize trading risk exposure. An auto closeout is triggered when the account net equity falls below the pre set percentage of the required margin and all open positions will be automatically closed at the prevailing market execution price. Trading FX and CFD’s on margin carries a high degree of risk because it allows you to speculate on currencies, commodities, and indices on a highly leveraged basis. A small adverse price change to the underlying asset can magnify the impact on the funds in your account, potentially resulting in the total loss of your initial investment and any additional funds that you may deposit to meet margin calls if you would choose to hold positions. At EFXglobal, Margin requirements are based on your account type and are updated regularly to account for price fluctuations. You can keep track of your used and usable margin on your trading platform.