What is Required Margin in Forex?
Required margin in forex is often confused with the various other types of ‘margin’ we refer to in the world of currency trading.
If you need a refresher on what ‘margin‘ means in forex, check out our post here.
Simply put, margin is the amount of capital a trader is required to put up in order to open a trading position, and subsequently maintain that same position.
Thankfully, forex brokers allow traders the benefit of only needing to risk a small amount of capital while still having the ability to trade larger positions. This gives forex traders the ability to make more money trading, even with a smaller account.
Free margin in forex, also known as ‘usable margin’, is the amount of money in a trader’s account that is available to actively trade with. So, any money that is currently tied up in other trading positions would not be counted towards free margin.
Required margin in forex is the amount of money that is essentially ‘locked up’ as a type of deposit by your broker when you open a trade.
It is the amount of money set aside by your broker so you can open a position.
Every trade position you open for a trade will have its own value of required margin.
Used margin is the sum of all a trader’s current required margin.
Other names for required margin are:
- deposit margin
- entry margin
- initial margin
How to Calculate Required Margin
Calculating required margin all depends on the margin requirement that your broker determines.
Once you know your margin requirement, you can calculate the required margin.
The formula for required margin in forex is:
This formula only works if your account’s currency is the same as the base currency in your trade.
If your account’s currency is different than the base currency in your trade, the following formula is used:
If you’re still having difficulty understand this concept fully, I’ll give you an example.
Example of Required Margin
Let’s say you want to open 1 mini lot in a USD/EUR trade. For this example, let’s say you just deposited $2000 in your account to trade with.
This position’s notional value is $10,000, because the mini lot for our base currency (USD) is $10,000.
The margin requirement is 3%.
So, 3% of 10,000 is 300.
Therefore, of your $2000 in your account, $300 will be set aside by your broker for you to take out a mini lot in this USD/EUR trade.
In this example, your free margin is $1700.
Online Forex Required Margin Calculator
If math isn’t your strong suit or you simply want to calculate your required margin in a matter of seconds, you can find plenty of free calculators online that will help you do so.
The one we like most is from myfxbook.com. Their required margin calculator is very easy to navigate and use.
All you need to do is input your accounts currency, currency pair, the current price, the margin ratio, and trade size. The calculator will automatically output your required margin.
Learn to Trade Forex
Learning popular forex terms such as ‘required margin’ is a great way to advance your trading knowledge and get closer to the goal of making a consistent living through currency trading.
That said, learning these definitions will not actually help you with making profitable trades and understanding the markets.
If you are new to forex and want to educate yourself on how to actually make money with trading, it’s important to invest in yourself and learn how to trade properly.
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