Strategy for Calculating Trading Level Margin

Margin level in forex is one of the most important things that prevent traders from losing hundreds of millions. Margin level is a barrier provided by forex brokers for traders who are trading. Margin level only appears if the trader has an active transaction, if there is no transaction it will not appear. In the world of forex itself, there are three types of margin, namely:

  • Margin
  • Margin Level
  • Free Margin

Margin is the smallest number or capital to enter the trading session that the trader wants to follow, the margin level is the loss limit accepted by the trader, while free margin is the remaining capital that can be returned to the trader after making a cut loss.

Margin level is closely related to risk management in the trading world. Because this is what prevents the risk of big losses or losses experienced by traders if they can't control their ego

How to Calculate Margin Level

Level-margin-belajar-trading

source: freepik

Margin Level is the ratio between equity/equity and margin expressed in Percentage.

Formula

Free Margin = Equity / Margin x 100%

Free Margin = $4998.80/ $20 x 100%

             = 24.994%

The % Margin Level above is 24.99%, so if the broker's Margin Call level is 20%, then the trader is still very safe from Margin Calls.

Margin Call Example

If the broker's Margin Call level is 20%, then the trader is currently hit by a Margin Call.

Balance: $100

Trading Entry : 0.5 Lot

(With the composition above, your account resistance is only 20 Pips)

Open Buy Price : 1690.00

So when the price is 1688.40 your account will be closed automatically because at that time your Margin Level is 20%.

How Margin Levels Work in Forex

Margin levels in forex actually work automatically. Usually, the forex trading application broker will notify you that it has provided a margin level option. Traders are free to decide whether to activate this feature or not.

when activated, the application will set the margin level with the formula equity: margin x 100% so that the amount or nominal margin level depends on the margin in the trading session or how much capital the trader spends in that session.

When a trading session is opened and a trader has an open position, the margin level will automatically be active and monitor the progress of the trading session from start to finish. When the market direction does not match the analysis made by the trader, the loss has started to be too large, and is far from the estimated equity value, the margin level will automatically cut losses on all positions that the trader opens. That way, all positions will be closed and the remaining margin alias free margin will return to the trader.

Generally, the margin level in forex will be active when the loss value has reached 100% of the calculated results. So that the value of the loss obtained by the trader will not be so large that there is no free margin left at all.



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