Margin Jargon Cheat Sheet

As you move into the world of margin trading, it may sounds like you have to learn an entirely new language to truly identify whats goin any peculiarities, also margin trading comes with its own nomenclature and jargon. In this lesson we will discuss some handy cheat sheet you may come along in any trading platform.

Margin

Which is the amount of funds expected from a trader to have to be able to maintain and open trades. It can be as a collateral to assure you can cover any losses incase you might incur on your positions.

Leverage

Leverage is the ratio between the amount of money you really have and the maximum amount of money you can trade. It is usually represented with an “X:1” format. Leverage allows you to trade positions higher than the amount of money in your trading account.

Forex traders often use leverage to profit from relatively small price changes in currency pairs. Leverage, can amplify both profits and losses. It can be indicated as a ratio.

Unrealized P/L

Unrealized P/L is the current profit or loss (P/L) held in your open positions. It is also called: Floating P/L

Balance

Balance is the total amount of money you left in your trading account. If you have an open position, even if it has a floating profit (or loss), your Balance is still the same as it is before you opened the new position. But the more you close the position, the profit (or loss) will be added (or subtracted) from the Balance and this will be your new Balance. That's the funds left. Balance can also be called: Account Balance or Cash.

Margin Requirement (Per Position)

Margin Requirement is the sum of margin expected to open a position. It can be described as a percentage (%) of the “full position” size or “Notional Value” of the position you wish to open.

Required Margin (Per Position)

Required Margin is the Traders money that is “locked up” and kept apart when you open a trade.

For example, if you open a $10,000 (mini lot) position, with a Required Margin of 2% (or 50:1 leverage), $200 will be “locked up” during the course of the trade.

Knowing that This $200 cant be used to open other positions as far as the trade is open. Once you close the trade, the $200 margin will then be “released” instantly. Required Margin per position can also be called:

● Entry Margin

● Initial Margin

● Initial Entry Margin

● Maintenance Margin Required (MMR)

HOW TO CALCULATE IT(PER POSITION):

If the major currency is the SAME as the currency on your account, then:

Required Margin = Notional Value x Margin Requirement

If the major currency is not the same from your accounts currency:

Required Margin = Notional Value x Margin Requirement

x Exchange Rate Between Base Currency and Account Current

Used Margin

Used Margin is the minimum amount of funds that must be maintained in a margin account. This is the total amount of margin in use to maintain open positions. Used Margin are also called : Margin Used, Maintenance Margin Required (MMR) and or Total Margin

HOW TO CALCULATE USED MARGIN:

Used Margin is just the Required Margin for ALL open positions.

Used Margin = Total Required Margin for ALL Open Positions

Equity

It can be defined as the total or sum of the funds (Balance plus the floating profit or loss )in all your open positions of the account . It Represents the “real-time” value of your account. Also known as: account Equity, Net Asset Value and Net Equity.

HOW DO YOU CALCULATE EQUITY:

If you have open positions:

Equity = Balance + Floating Profit (or Loss)

But If you do not have any positions that is open, then:

Equity = Balance

Free Margin

While used margin is the locked up Margin, Free Margin is the money that is NOT “locked up” due to an open position which means it s free and can be used to open new positions. When this value is at zero or less the Margin Warning is sent and no other positions can be opened. Free Margin can also be called : Free Margin, Available Margin, Usable Margin, Usable Maintenance Margin Available to Trade

HOW TO CALCULATE FREE MARGIN:

Free Margin = Equity - Used Margin

Margin Level

Margin Level is the ratio between the Equity (some of all the funds) and the one that is being Used or say used Margin. It can be Also be described as a percentage. For example, if you have Equity of $5,000 and the Used Margin is $1,000, the Margin Level is 500%. It can also be called as Margin Indicator.

HOW TO CALCULATE MARGIN LEVEL:

Margin Level = (Equity / Used Margin) x 100%

Margin Call Level

The Margin Call Level is the specific level (%) where if your margin level is equal or below it, you wont be able to open another positions. Your trading platform determines the Margin Call Level.

For example, if the Margin Call Level is 100%, this means that if your Margin Level reaches 100%, you wont be open a new positions. At this point, your account is now under a Margin Call.

Even though most new traders assume this means that their trade(s) may be closed, thats not true. A Margin Call Level is just a warning alarm. It is also called Minimum Margin Requirement or Minimum Required Margin

HOW TO CALCULATE:

Margin Call Level = Margin Level at X%

Stop Out Level

The Stop Out Level is the specific level (%) where if your Margin Level is equal or below it, your broker will automatically start closing your positions until the Margin Level is higher than the Stop Out Level

For example, lets say the Stop Out Level is 50%.

This means that if the Margin Level falls below 50% a Stop Out will automatically occur and the position floating the largest loss will be liquidated automatically.

This process will be repeated until the Margin Level increases to a level above 50%. Another names of it are:

● Liquidation Margin

● Margin Closeout

● Margin Close Out (MCO)

● Minimum Required Margin

HOW TO CALCULATE:

Stop Out Level = Margin Level at X%

Margin Call

A Margin Call occurs when you have breached the Margin Call Level but still above the Stop Out Level.

A Margin Call, is a warning message, telling you that your account is at risk not doing well and that you are close to having your open positions liquidated at market price.

You are still allowed to keep your current positions open but you cant open new positions.

Stop Out

A Stop Out, which occur as early as the Stop Out Level has been breached, is when your open positions will be automatically closed (“liquidated”) to prevent a poor balance in the account.