The minimum amount reserved to hold the active position of the leveraged trade is called margin. Forex market works in the concept of leverage (leverage is the amount rewarded by the forex broker for trading). For example, we have $1000 in our account with a leverage of 1:100. It means a broker will invest 99% while 1% will invest from our account for every open position.
In the above example, we consider that we have a hundred-time amount in our account, i.e. &1000*&100=&100000
Suppose we open a position of &100 then we have the below calculation in our account.
|Broker Amount (99%)||Margin/Our Amount (1%)||Market Exposure (100%)|
|&99 (99%)||&1 (1%)||&100 (100%)|
It is part of the equity which cannot withdrawal before closing the opened trades.
What is Free Margin in Forex Trading?
It is the available amount in our trading account which can use for further trading in the foreign exchange market. This amount reserve for withdrawal or open a new position in the Forex financial market. The formula to calculate free margin is,
Free Margin = Equity – Margin
What is a Forex Margin Level
Forex margin level is also an important term of forex trading. It is the percentage ratio of your equity to the used margin. It determines whether we can open a new position or not. Every broker set the margin call level differently. Let a broker has a margin call level 100% then you cannot open a new position if your margin call level below the 100%. It is calculated by using the below formula.
Margin level = (equity/used margin) x 100.
What is a Margin Call in Forex Trading?
It is the alert received from your broker if the fund in your account cannot cover your possible loss and your equity falls below your required minimum level. If a margin call occurs, some or all open positions will be closed by the broker at the market price.