Forex margin & Margin call
Margin is the amount of money you have to put upfront for the forex broker to give you leverage. Say you want to open a trade position of $200,000 at a leverage of 1:100, your broker will allocate $2,000 from your account as your equity for the position.
The $2,000 deposit is "margin".
Most brokers have minimum margin requirements. Major broker requirements hover around 2% (or 50:1) on the major currency pair and 5% (20:1) or more for the minor currency pairs.
Margin is usually expressed as a percentage of the full amount of the position. For example, most forex brokers say they require 2%, 1%, .5% or .25% margin. In the table below you can see the leverage levels associated for different margin requirements.
Margin call
In the above margin position your broker sets aside $2000 from your account. Should the currency pair move against your expectation, your position worsens. When the loss reaches $2000, the broker can
1. Close your position at the available market price (or)
2. Contact you to allocate more money into your account
This is called a Margin call.
- What is forex leverage?
- Forex margin call
- Risk of excessive leverage
1. Risk management basics
2. Leverage, margin call
3. Stop losses
4. Forex trader psychology
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