Example of Margin Calculation

                                                                                                       

                                Example of Margin Calculation

Trader A's account equity is $1,000,000. Theaccount is set to 1% margin or 100:1 leverage. This means that forevery lot opened, Trader A must maintain at least $1,000 in margin.



Assume Trader A is long 400 lots of EUR/USD at 1.4000 with a 2-pip spread. The used margin is as follows:



Used margin = Margin requirement per lot * Number of lots

Used margin = $1,000 * 400 = $400,000



The spread cost is as follows:Spread cost = Number of lots * Pip cost per lot * Number of pips in spread

Spread cost = 400 * $10 per pip * 2 pips = $8,000



Trader A is left with equity of $992,000 after the $8,000 spread cost is subtracted. The trader's usable margin is as follows:Usable margin = Equity - Used margin

Usable margin = $992,000 - $400,000 = $592,000



At a value of $10 per pip, the EUR/USD would have to fall 148 pipsbefore margin would be called and all positions closed outautomatically. The following clarifies how the margin close-out levelis determined pips to margin close-out = Usable margin / (Pip cost per lot * Number of lots)

Pips to margin close-out = $592,000 / ($10 per pip * 400 lots) = 148 pips



Trader A will receive a margin close-out, and all trades will be closed, if the price drops 148 pips from the entry price. Margin close-out price = 1.3852.



                                                  

	Equity ($)	Margin	Leverage	Minimum Margin Requirement	# of Lots Open	Used Margin	Usable Margin
Trader A	$992,000	1%	100:1	$1,000	400	$400,000	$592,000

                       

Trader B's account equity is $1,000,000.The account is set to 2% margin or 50:1 leverage. This means that foreach lot opened, Trader B must maintain at least $2,000 in margin.



Assume Trader B is long 400 lots of EUR/USD at 1.4000 with a 2-pip spread. The used margin is as follows:Used margin = Margin requirement per lot * Number of lots

Used margin = $2,000 * 400 = $800,000



The spread cost is as follows:Spread cost = Number of lots * Pip cost per lot * Number of pips in spread

Spread cost = 400 * $10 per pip * 2 pips = $8,000



Trader B is left with equity of $992,000 after the $8,000 spread cost is subtracted. The trader's usable margin is as follows:Usable margin = Equity - Used margin

Usable margin = $992,000 - $800,000 = $192,000



At a value of $10 per pip, the EUR/USD would have to fall 48 pipsbefore margin would be called and all positions closed outautomatically. The following clarifies how the margin close-out levelis determined pips to margin close-out = Usable margin / (Pip cost per lot * Number of lots)

Pips to margin close-out = $192,000 / ($10 per pip * 400 lots) = 48 pips



Trader B will receive a margin close-out, and all trades will be closed, if the price drops 48 pips from the entry price. Margin close-out price = 1.3952.



                                                                            

	Equity ($)	Margin	Leverage	Minimum Margin Requirement	# of                         Lots Open	Used                         Margin	Usable                         Margin
Trader B	$992,000	2%	50:1	$2,000	400	$800,000	$192,000

Related article: Leverage