Trading Scenario: What Happens If You Trade With Just $100?

Trading scenario means some vital techniques or descriptions of some possible actions that a trader needs to know for successful and profitable trading.

Can you imagine What happens if you have account and wants to set trade with just $100？

We know that margin trading allows you to open trades with just a small amount of money not necessary the full value, then it's very possible to start trading forex with a $100 deposit.

But should you go ahead to trade？

Lets see what can happen if you go ahead to trade that way.

We assume In this trading scenario, your retail forex broker offers a Margin Call Level of 100% and a Stop Out Level of 20%.

So Now that we know what the Margin Call and Stop Out Levels are, lets find out if trading with $100 is possible.

Step 1: Deposit Funds into Trading Account

Since youre a courageous trader and want to trade with hope, you deposit $100 into your trading account. You now have an account balance of $100.

And below is how your trading account will looks like:

Step 2: Calculate Required Margin

Now You want to go short EUR/USD at 1.20000 and want to open 5 micro lots (1,000 units x 5) position. The Margin Requirement is 1%.

How much margin (“Required Margin”) will you need to open the position？

Since the account we trading with is denominated in USD, we need to convert the value of the EUR to USD to determine the Notional Value of the trade.

€1 = $1.20

€1,000 x 5 micro lots = €5,000

€5,000 = $6,000

The Notional Value is $6,000.

We can now calculate the Required Margin:

Required Margin = Notional Value x Margin Requirement

$60 = $6,000 x .01

Supposing the account youre trading is denominated in USD since the Margin Requirement is 1%, then the Required Margin will be $60.

Step 3: Calculate Used Margin

Remember that no any other trades are open a apart from the one we just entered.

And Since we only have a SINGLE position open, the Used Margin will be the same as also the Required Margin.

Step 4: Calculate Equity/ Total amount

Lets suppose that the price has moved slightly in your favor and your position is now trading at breakeven. This means that your Floating P/L is $0.

Let‘s calculate your account’s Equity:

Equity = Balance + Floating Profits (or Losses)

$100 = $100 + $0

The Equity will now be $100 in your account.

Step 5: Calculate Free Margin

It is simple to calculate the Free Margin Now since we know the Equity, we can now calculate the Free Margin:

Free Margin = Equity - Used Margin

$40 = $100 - $60

The Free Margin is $40.

Step 6: Calculate Margin Level

Since we also know the Equity Now, we can calculate the Margin Level:

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

167% = ($100 / 60) x 100%

The Margin Level is 167%.

At this juncture, below is how the metrics on your account would look in your trading platform:

EUR/USD rises 80 pips

EUR/USD rises 80 pips and is now trading at 1.2080.

Lets take a look and see how your account is affected.

Used Margin

Youll notice that the Used Margin has changed.

Because the exchange rate also has changed, the Notional Value of the position has changed. This requires recalculating the Required Margin.

Whenever theres a change in the price for EUR/USD, the Required Margin changes!

With EUR/USD now trading at 1.20800 (instead of 1.20000), lets see how much Required Margin is expected to keep the position open.

Since our trading account is denominated in USD, we need to convert the value of the EUR to USD to determine the Notional Value of the trade.

€1 = $1.2080

€1,000 x 5 micro lots = €5,000

€5,000 = $6,040

The Notional Value is $6,040.

Remember that, the previous Notional Value was $6,000. Since EUR/USD has risen, this means that EUR has strengthened. And since your account is denominated in USD, this causes the positions Notional Value to increase. And Now we can calculate the Required Margin:

Required Margin = Notional Value x Margin Requirement

$60.40 = $6,040 x .01

Notice that because the Notional Value has increased, so has the Required Margin. Since the Margin Requirement is 1%, the Required Margin will be $60.40.

Previously, the Required Margin was $60.00 (when EUR/USD was trading at 1.20000). The Used Margin is updated to reflect changes in Required Margin for every position open.

In this example, since you only have one position open, the Used Margin will be equal to the new Required Margin.

Floating P/L

EUR/USD has risen from 1.20000 to 1.2080, a difference of 80 pips.

Since youre trading micro lots, a 1 pip move equals $0.10 per micro lot.

Your position is 5 micro lots, a 1 pip move equals $0.50.

Since youre short EUR/USD, this means that you have a Floating Loss of $40.

Floating P/L = (Current Price - Entry Price) x 10,000 x $X/pip

$40 = (1.2080 - 1.20000) x 10,000 x $0.50/pip

Equity

Your Equity is now $60.

Equity = Balance + Floating P/L

$60 = $100 + (-$40)

Free Margin

Your Free Margin is now $0.

Free Margin = Equity - Used Margin

-$0.40 = $60 - $60.40

Margin Level

Your Margin Level has decreased to 99%.

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

99% = ($60/ $60.40) x 100%

The Margin Call Level is when Margin Level is 100%. Your Margin Level is still now below 100%!

And At this point, you will receive a Margin Call, which means to be Cautious. Even though Your positions will remain open BUT You will NOT be able to open new positions as long unless the Margin Level rises above 100%.

Account Metrics

Check below to how your account metrics would look in your trading platform

EUR/USD rises another 96 pips!

Pair of EUR/USD rises another 96 pips and is now trading at 1.2176.

Now let's see the changes In the parameters :

Used Margin

With EUR/USD now trading at 1.21760 (instead of 1.20800), lets see how much Required Margin is needed to keep the position open.

It is known that our trading account is denominated in USD, we need to convert the value of the EUR to USD to determine the Notional Value of the trade.

€1 = $1.21760

€1,000 x 5 micro lots = €5,000

€5,000 = $6,088

The Notional Value is $6,088.

We can now calculate the Required Margin:

Required Margin = Notional Value x Margin Requirement

$60.88 = $6,080 x .01

Notice that because the Notional Value has increased, so has the Required Margin. Since the Margin Requirement is 1%, the Required Margin will be $60.88. And Previously, the Required Margin was $60.40 (when EUR/USD was trading at 1.20800).

The Used Margin is updated to reflect changes in Required Margin for every position open.

For this example, since you only have one position open, the Used Margin will be equal to the new Required Margin.

Floating P/L

EUR/USD has now risen from 1.20000 to 1.217600, a difference of 176 pips.

Since youre trading 5 micro lots, a 1 pip move equals $0.50.

Due to your short position, this means that you have a Floating Loss of $88.

Floating P/L = (Current Price - Entry Price) x 10,000 x $X/pip

-$88 = (1.21760 - 1.20000) x 10,000 x $0.50/pip

Equity

Your Equity is now $12.

Equity = Balance + Floating P/L

$12 = $100 + (-$88)

Free Margin

Your Free Margin is now –$48.88.

Free Margin = Equity - Used Margin

-$48.88 = $12 - $60.88

Margin Level

Your Margin Level has now decreased to 20%.

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

20% = ($12 / $60.88) x 100%

At this stage, your Margin Level is now below the Stop Out Level!

Account Metrics

Let us show how your account metrics would look in your trading platform:

Stop Out

Stop Out is when all your open trades are automatically closed by your broker. Here The Stop Out Level is when the Margin Level falls to 20%. At this point, your Margin Level reached the Stop Out Level.

This means that your trade will be automatically closed at market price and two things will happen:

[ ] Your Used Margin will be “released”.

[ ] Your Floating Loss will be “realized”.

Your Balance will be updated to reflect the Realized Loss.

Now that your account has no open positions and is “flat”, your Free Margin, Equity, and Balance will be the same.

There is no Margin Level or Floating P/L because there are no open positions.

Lets see how your trading account changed from start to finish.

Before the trade, you had $100 in cash.

Now after just a SINGLE TRADE, youre left with $12!

Not even enough to pay for one month of Netflix!

Youve lost 88% of your capital.

% Gain/Loss = ((Ending Balance - Starting Balance) / Starting Balance) x 100%

-88% = (($12 - $100) / $100) x 100%

And with EUR/USD moving just 176 pips!

Moving 176 pips is nothing. EUR/USD can easily move that much in a day or two. (See real-time EUR/USD volatility on MarketMilk™)

Awesome! You just blew your account!, Since your remaining balance in the account is too low to open any new trades, your trading account is pretty much dead.