What Are Margin Calculations?

So, what are Margin Calculations? As a beginner, you must be quite baffled by the term and its significance in forex. But don’t worry. Read on to get all your questions answered.

The term Margin actually means the sufficient collateral required by banks or dealers to cover the losses risked by the speculator in the case where the position results in a loss.

So why is calculating margins important? As a new trader, you will often face the questions like- how much margin are available for me or within the given Margin, how big a trade can I make? There are Margin calculators available on the net giving you the complete information on what you need to know about Margin Calculations.

These calculators will tell you how much margin is available for you. You will also get the information on the maximum number of units you can trade, within your available margin. The Margin Calculator will also be able to guide you on how much margin you need for a particular trade. Indicating how far away from a margin call you are, will help you make the right decisions.

As a beginner in currency trading, you should be well familiar with the following terms while calculating Margins.

Net Asset Value

Net Asset Value means the current value of your account. It shows your account balance along with the unrealized profit and losses associated with your open positions. It indicates the values of your amount if you decide to liquidate your account by closing all positions and withdrawing all your funds.

Margin Used

Margin Used is equal to Position Value multiplied by Required Margin, summed up over all open positions. Position Value is the size of the position (in units) converted from the Base currency of the currency pair in question to your Account currency.

Margin Available

Margin Available is the margin a trader still has available to initiate new trades. It is equal to the greater of $0 or “Net Asset Value” minus the “Margin Used”. This value will fluctuate continuously if you have open positions.

Margin Required

It is relatively straightforward to calculate the Margin Required to open a new trade, whether you are creating a new position or are increasing an existing position.

If the Margin Required is less than or equal to the Margin Available, then you are able to make the trade. But if the Margin Required is greater than the Margin Available, then your trade order will face rejection. Consider the margin requirements of your positions immediately after executing your order. Having sufficient margin will allow you to make the trade

Margin Call

Remember that the Margin Used divided by two must always be less than the Net Asset Value of your account. If this is not the case, then a margin call can occur without warning. You should always monitor your account to see if a margin call may happen.