You will come across the term margin countless times in your trading journey. You probably have encountered it already. In any case, you need a margin to open a trade. But what is a margin?
A margin is the portion of capital that you need to open and maintain a trade. Think of it as a collateral or goodwill assurance that you can cater to a loss if the trade goes south. But do not get it twisted. A margin is not a cost or transaction fee. Simply, part of your capital is locked when the trade is active and released when the trade closes. It allows you to leverage the trading positions.
The margin amount depends on the forex broker. For instance, you do not need the full amount to open a $1000 trade, just a portion, say $350. The margin is expressed as a percentage of the notional value (the full position size). The margin requirement varies depending on the forex broker, and it can be as low as 0.2% to as high as 10% or even more. This percentage is referred to as the margin requirement. The exact figure of the margin requirement is known as the required margin. If the margin requirement is 3%, then the required margin for a trade with a notional value of $1000 is $30.
Is margin important? Margin is perhaps one of the most important things you should closely monitor when trading. It is where you should direct your primary focus when trading, not necessarily the account balance. The account balance shows your progress, but the margin is what you need to trade. When the margin falls below 100%, it means your account balance can’t cover the margin requirements. In most cases, you get the dreaded margin call. The broker might liquidate some running trades. You should therefore avoid margin calls at all costs.
It is important to note that the maximum leverage in European Union countries and Australia is 1:30 and all the best European Brokers respect the EU laws when it comes to the maximum possible leverage they can offer. This significantly affects the margin requirements in these countries. (And the conditions described below are not the same for traders from these countries).
Here are some brokers who offer low margins
Margin requirements vary across different instruments and Avatrade platforms. All Avatrade accounts are leveraged margin meaning a trader must maintain a certain amount in the account to keep the position open. The margin requirement is available in the ticket window before executing a trade.
For retail traders, the margin call occurs when the equity level falls 50% below the margin on MT4. The margin call occurs for professionals and non-EU traders when the equity falls 10% of the margin level. If the net liquidation value drops below 25% of the required margin in the Avaoptions account, a margin call will occur and all positions liquidated.
The margin requirement varies depending on the forex pair. The lowest is 0.25% for major currencies such as EUR/USD, USD/CAD, EUR/GBP, NZD/USD. GBP/ILS has 1% margin requirements while USD/CNY has 2%. For USD/RUB and EUR/RUB, the margin requirement is 5%.
76% of retail CFD accounts lose money
Free and used margins make up the account equity. XM has a special formula to calculate the required margin. They have an embedded margin calculator to ease the traders’ work.
XM’s Margin Formula
Required Margin = Trade Size / Leverage * Account Currency Exchange Rate.
Note that XM has flexible leverage ranging from 1:1 to 1:888. Currencies involving CHF are capped at 1:400 while USD/TRY and EUR/TRY have a maximum leverage of 1:100. This means that if you set the margin at 1:100, you will need to set aside 1% of your equity to trade.
While it is the sole responsibility of the trader to monitor their account, XM has a margin call policy to ensure the losses do not surpass the equity. You’ll receive a margin call alert when the equity goes below 50% margin. Below 20% is the (XM step-out level) meaning you do not have sufficient equity to support an open position. Therefore, your open positions will close automatically.
74–89% of retail CFD accounts lose money
Plus 5000 is a Sydney-based leading provider of Contract of Difference using innovative trading technology. It offers trading facilities like cryptocurrencies, stocks, and forex. The margin requirements vary depending on the forex pair. Major forex pairs such as EUR/USD/GBP/USD, euro/CHF, and AUD/USD require an initial margin of 3.33% and a maintenance margin of 1.67%. Others like EUR/NZD have a margin requirement of 5.00% initial margin and 2.50% maintenance margin.
To determine the margin requirement when trading on Plus500, simply head to the main page and click on the instruments. Then choose the preferred currency pair. You will see an information window on the right side of the screen showing the margin requirements.
Exness allows you to choose a suitable margin according to the rules and requirements. It offers dynamic and fixed margins.
Dynamic Margin Requirements
It changes with leverage. The higher the leverage, the higher the margin and vice versa. Publication of important news and trading before holidays and weekends can also affect the margin. The positions are calculated on a 1:200 leverage 15 minutes before high-impact news and 5 minutes later. Daily breaks affect the gold margin requirements, while the financial report affects the stocks margin requirements.
According to forex brokers reviews, the maximum leverage for equity above $30000 is 1:500, and the margin requirement is 0.2%. When the leverage increases, the equity and margin requirement reduces.
Fixed Margin Requirements
It is not affected by unlimited leverage. Some instruments have fixed margins. iN THIS category is palladium, platinum. Others are also listed under stocks, exotics, indices, cryptos, and energies.
Remember that forex and CFDs available at Exness are leveraged products and can result in the loss of your entire capital. Please ensure you fully understand the risks involved.
IQ Option facilitates margin trading with a leverage of up to 1:500. The minimum margin requirement is 0.2%. The formula for calculating the margin is:
Margin = Lot size × Contract size / Leverage
With the margin, you can now calculate the margin level.
Margin level = Equity / Margin × 100%
Do not worry about the calculations. Detailed information about a currency shows margin requirements. The broker initiates a margin call when the equity goes below the 100% margin level. Open positions are forcibly closed if the margin level falls below 50%.
Final Words on brokers with low margin requirements
Different brokers have varying margin requirements. In addition, the margin requirements depend on specific instruments and set leverage. The margin calls and stops out also vary significantly. You should therefore consider the margin requirements when trading. The list above will get you started.
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