Above, I have already answered the question: what is the forex margin level? This is the ratio of available funds to collateral, expressed as a percentage. Important concepts such as Margin Call and Stop Out are associated with the concept of margin level. Margin Call level occurs when the amount of your available funds becomes equal to 0 or goes “minus”. In this case, you no longer have the opportunity to open new transactions, since all the funds available on your trading account are a guarantee deposit for already opened transactions. After Margin Call has come, Stop Out may come. Stop out occurs when the margin level goes “minus” and the funds approach 0. In this case, the broker, in order to prevent the client from “minus”, begins to forcefully close the client’s positions, starting with the most unprofitable one.
Traders who work with aggressive trading strategies are very familiar with these situations, and they occur quite often in their trading. Of course, there is nothing pleasant about this, and these situations most often lead to the loss of the entire deposit. Traders working on conservative trading strategies may not know these definitions at all, because they have not been in these situations.
Let’s see how to calculate the margin level and the level of the free margin.
Free margin is the difference between funds and collateral.
Free margin = Funds – Margin = 419 856.12 – 31.34 = 419 824.78
Margin level is the ratio of funds to margin, expressed as a percentage.
Margin Level = (Equity / Margin) * 100% = (419 856.12 / 31.34) * 100% = 1339542.39%
Rationally using the principle of margin trading, you can significantly increase the effectiveness of your forex trading. However, this does not mean that it is necessary to take the maximum possible leverage and hope for a miracle. Rational use means that you must choose a comfortable leverage value in which trading on the exchange will not bear a huge psychological burden for you. Remember! The less we get nervous and worried, the more informed transactions we make, and therefore, the chances of making a profit increase. Remember forever: the higher the leverage, the higher the risks! If you are at the beginning of your exchange path, take the law for yourself: The main thing is not to lose what you have, but profit will come by itself!