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### Lesson 29: What is Margin,How to calculate margin?

An estimate of how much margin will be required for a currency pair can be calculated by following this equation in the base currency: Margin = V (lots) * Contracts / Leverage; * Here is the formula to calculate the Required Margin: If the base currency is the SAME as your account’s currency: Required Margin = Notional Value x Margin Requirement. If the base Here is the formula to calculate the Required Margin: If the base currency is the SAME as your account’s currency, Required Margin = Notional Value x Margin Requirement. If the base Margin = V (lots) × Contract / Leverage, where: Margin — deposit required to open the position. V (lots) — volume of the position you want to open in lots. Contract — the size of the contract, To manually calculate required margin: (Amount x margin) x account currency exchange rate. These calculators are provided for general informational purposes only. The results shown are ... read more

Calculation type is displayed in the "Calculation" field of the symbol specification :. The margin for the Forex instruments is calculated by the following formula:. For example, let's calculate the margin requirements for buying one lot of EURUSD, while the size of one contract is , and the leverage is After placing the appropriate values to the equation, we will obtain the following result:.

So, now we have the margin requirements value in base currency or margin currency of the symbol. This type of calculation is also used for Forex symbols. But unlike the previous one, it does not take into account the trader's leverage:. For example, let's calculate the margin requirements for buying one lot of EURUSD, while the size of one contract is and the leverage is Generally, margin requirements currency and symbol's base currency are the same.

If the margin currency is different, calculation results are displayed in that currency instead of the symbol's base one. The margin requirements for contracts and stocks are calculated using the following equation:. The current market Ask price is used for buy deals, while the current Bid price is used for sell ones. For example, let's calculate the margin requirements for buying one lot of AA, the size of the contract is units, the current Ask price is So, now we have the margin value in base currency or margin currency of the symbol.

The leverage is also considered in this type of margin requirement calculation for contracts:. For index contracts, the margin requirements are calculated according to the following equation:. In this formula, the ratio of price and tick size is considered in addition to common contracts calculation. There are two types of the margin requirements for futures contracts:.

Both values are specified in the symbol specification. If the amount of the maintenance margin is not specified, the initial margin value is used instead. There are two types of margin requirements for futures contracts:. The final size of the margin depends on the volume:. If the amount of the maintenance margin is not specified, the initial margin value will be used instead.

If neither the initial nor the maintenance margin is specified, the appropriate value will be calculated according to the following formula:.

The current market Ask price is used for buy deals, while the current Bid price is used for sell deals. The same calculation method is applied for all risk management modes. The bond margin is calculated as part of the position value. Bond prices are provided as a face value percentage, so the position value is calculated as follows:.

The part of the position value to be reserved for maintenance is determined by margin ratios. The margin for the futures contracts of the Moscow Exchange derivative section is calculated separately for each symbol: First, the margin is calculated for the open position and all Buy orders. Then the margin for the same position and all Sell orders is calculated. The largest one of the calculated values is used as the final margin value for the symbol.

Thus, the same position is used in the calculation of both values. In the first formula which includes Buy orders , the position margin is calculated as follows:. The volume is used with a positive sign for long positions and with a negative sign for short positions. In the second formula which includes Sell orders , the position margin is calculated as follows:. The volume is used with a positive sign for short positions and with a negative sign for long positions. This approach provides the trader a discount on margin, when there is an open position in the opposite direction with respect to the orders placed the position acts as collateral for orders.

Margin on orders is calculated by the following formulas:. All these parameters for calculation are provided by the Moscow Exchange. InitialMarginBuy is written to the "Initial margin" field, InitialMarginSell is written to the "Maintenance Margin" field in symbol properties. The below example shows the calculation of margin requirements for the following trading account state:.

The resulting margin for the Si Non-tradable instruments of this type are used as trader's assets to provide the required margin for open positions of other instruments.

For these instruments the margin is not calculated. If the "Initial margin" field of the symbol specification contains any non-zero value, the margin calculation formulas specified above are not applied except for the calculation of futures , as everything remains the same there.

In this case, for all types of calculations except for Forex and Contracts Leverage , the margin is calculated like for the "Futures" calculation type:. Calculations of the Forex and Contracts Leverage types additionally allow for leverage:. This stage is common for all calculation types. Conversion of the margin requirements calculated using one of the above-mentioned methods is performed in case their currency is different from the account deposit one.

The current exchange rate of a margin currency to a deposit one is used for conversion. The Ask price is used for buy deals, and the Bid price is used for sell deals.

For example, the basic size of the margin previously calculated for buying one lot of EURUSD is EUR. If the account deposit currency is USD, the current Ask price of EURUSD pair is used for conversion. For example, if the current rate is 1. The final margin requirements value calculated taking into account the conversion into the deposit currency, is additionally multiplied by the appropriate rate. For example, the previously calculated margin for buying one lot of EURUSD is USD.

This sum is additionally multiplied by the long margin rate. For example, if it is equal to 1. The margin can be charged on preferential basis in case trading positions are in spread relative to each other. The spread trading is defined as the presence of the oppositely directed positions of correlated symbols. Reduced margin requirements provide more trading opportunities for traders.

Configuration of spreads is described in a separate section. Spreads are only used in the netting system for position accounting. If the hedging position accounting system is used, the margin is calculated using the same formulas and principles as described above. However, there are some additional features for multiple positions of the same symbol. Their volumes are summed up and the weighted average open price is calculated for them. The resulting values are used for calculating margin by the formula corresponding to the symbol type.

For pending orders if the margin ratio is non-zero margin is calculated separately. Oppositely directed open positions of the same symbol are considered hedged or covered. Two margin calculation methods are possible for such positions. The calculation method is determined by the broker. Used if "calculate using larger leg" is not specified in the "Hedged margin" field of contract specification. The resulting margin value is calculated as the sum of margins calculated at each step.

Calculation for covered volume. Used if the "Hedged margin" value is specified in a contract specification. In this case margin is charged for hedged, as well as uncovered volume. If the initial margin is specified for a symbol, the hedged margin is specified as an absolute value in monetary terms.

If the initial margin is not specified equal to 0 , the contract size is specified in the "Hedged" field. The margin is calculated by the appropriate formula in accordance with the type of the financial instrument, using the specified contract size. Margin is NOT a fee or a transaction cost. What is Margin Requirement? You may see margin requirements such as 0. Previous Lesson. Next Lesson. What is Forex? Lesson 1: What is Forex Lesson 2: What Is Traded In Forex Lesson 3: Buying And Selling Currency Pairs Lesson 4: Forex Market Size And Liquidity Lesson 5: The Different Ways To Trade Forex.

The Forex Margin Calculator by FinanceBrokerage is determined to guide you through the most vital concepts of forex : forex margin and marginal trade. Margin is an insurance that you must maintain on your account for opening positions. The Margin Calculator works out exactly how much margin do you need in order to open a particular position.

Since forex trade carries a high level of risk, you must determine if you need to reduce the lot size trade size or you can afford to trade more. In fact, the forex margin determines if you can afford to enter the trade. In fact, that is why it is so important for a trader. Every forex trader must acknowledge the concept of the forex margin. In fact, during the marginal trade, you only need to pay a percentage of the full value to enter the trade.

Where: Trade size — is the volume of trade in monetary expression; Leverage — is the financial shoulder provided to you by your broker; Exchange rate — is the rate applicable for currency pair you trade with. Also, your broker granted you the leverage of and the transaction volume is 5 USD. To calculate the potential profit or loss from trade please visit our forex profit calculator. Home Profit Calculators Forex Margin Calculator.