What is the margin in Forex?
There are two types of margins, used and Free margin.
The margin used is the amount necessary to maintain the open positions.
For example, you could use the leverage of 100 and buy a lot of EUR/USD (€100000) when the EURUSD trades at 1.3525.
Since the leverage is 100, 1000 euros are required for the lot. But, since the hypothetical trader's account is in dollars, those euros must be converted into dollars: 1000 euros equals $1352.5: the margin used will be $1352.5.
Keep in mind that we are not considering commissions in these examples.
The free margin is the amount that remains in equity, which is not used to maintain open positions. So:
Free Margin = Equity - Margin
If we had equity of $10,000, our free margin is: $10,000 - $1352.5 = 8647.5
Now, what happens when the quotes of the currency pairs change? In our example, what happens if the EURUSD pair price increases? On the one hand, more money is needed to maintain open positions, but on the other, equity is also modified.
If the EUR/USD price rises from 1.3525 to 1.3625, our margin will increase because we need more money to maintain the open position, but on the other hand we open additional cattle because we were positioned in that pair. If the equity at the time of opening the operation was $10,000:
New Margin: $1362.5
New Equity: $10000 + $100000 (1.3625 - 1.3525) = $11000
New Free Margin: $9637.5
Whenever leverage is used, the free margin will increase if we are positioned long (buyers) in a currency pair whose price increases, because equity increases more than the margin.
With the word "margin" the brokers almost always refer to the margin used as we present it here, but we have seen that in some platforms they refer to the margin used to open the positions (that is, it is a "historical" margin).
Now that you know how the margin is calculated, what would happen if I told you that Exness does all the work for you since it offers you a margin calculator?
The Exness calculator that traders have at their disposal has been designed to calculate the parameters of a transaction, including the margin, the cost of each point and the amounts of the SWAP.
Just enter the initial data in the corresponding fields and press "Calculate".
The information provided by the calculator will be critical, especially if you have accounts in several different positions or with other currency pairs.
In a short time, you can know not only the margin but also the main parameters for the trade. There is very little chance of error since the data in your account is in the calculator.