In the forex market, margin refers to the amount required to open leveraged orders or contracts.
Without leverage, a trader executing a standard lot trade would need to deposit the full contract value of $100,000 to proceed. However, leverage enables traders to open the same $100,000 contract with a reduced margin amount, which is determined by the specified leverage ratio. For example, an account with a leverage of 1:100 requires only $1,000 in margin to execute a $100,000 trade.
By offering leverage, traders are able to enter contract positions with relatively minimal initial capital. Without this leverage, traders would have to invest the complete contract value of $100,000 for a standard lot trade. With 1:100 leverage, a trader can effectively open a position with just $1,000 in initial margin.
The margin calculation formulas are as follows:
1. Floating Leverage (common currency pairs and gold)
● Forex: Contract Size＊ Lots＊Margin Percentage／ Account Leverage
● CFD-Leverage: Opening Price * Lot Size * Contract Size / Leverage
You can view the account leverage in Client Portal.
2. Fixed Leverage (exotic currency pairs and other products)
● CFD: Opening Price * Lot Size * Contract Size * Margin Percentage
● CFD (Margin Initial): Margin initial＊ Lots＊Margin Percentage
You can view the margin percentage for fixed leverage products in MT4 "Specification." If you see the field of margin initial, then it means that the product is applied to CFD (Margin Initial).
Example: EURUSD price is 1.07390/1.07401. Without leverage, the margin required for 1 lot sell order is as follows:
Margin = 1.07390 * 1 * 100,000
= 107,390 USD
If the leverage is 1:100, the margin required for 1 lot sell order is as follows:
Margin = 1.07390 * 1 * 100,000 / 100
= 1,073.90 USD
As seen in the above example, the margin required for trading without leverage is significantly higher. Using leverage can reduce the margin needed to open a position. Please note that the higher the leverage, the greater the risk you will need to bear. You can adjust the leverage to fit your risk tolerance and trading strategy.
