Forex Margin and Leverage - Lesson 4

What is Margin?

Margin is the amount required to open a new forex position. It is not a fee or a charge to your account. It is an amount set aside, from your free equity, for your new trade.

What is Leverage?

The leverage of your account is the multiplier of your purchasing power. A change in leverage does not change the pip value of your trade. For more information go to the Pip Value Calculation Page

Margin Calculations

Effective November 21, 2011, at 22:00 GMT (Monday, 11:00 AM NZT).

Forex Examples

For the below examples we will assume that:

• Your account deposit currency is USD.
• The standard lot size is 100,000 units of currency.
• Leverage is 200 (i.e. 200:1)

1. If trading a USD/JPY pair:
Margin = Standard Lot x Lot Size / Leverage Example (trading 0.1 lots of USDJPY):
Margin Requirement = 100,000 x 0.1 / 200 = 50 USD

2. If trading a GBP/USD pair:
Margin = Standard Lot x Quote x Lot Size / Leverage Example (trading 0.5 lots of GBPUSD @ 1.59000):
Margin = 100,000 * 1.59000 * 0.5 / 200 = 397.50 USD.

3. If trading a cross pair (like AUD/JPY):
This is essentially the same as example 2. We are buying the AUD currency, but this time we are paying for it in some other currency, not USD (our account currency). The margin requirement is the same as if we bought AUD/USD (the primary major cross rate).
Margin = Standard Lot x (xxxUSD quote) x Lot Size / Leverage Example (trading 0.5 lots of AUDJPY with AUDUSD @ 1.02040):
Margin = 100,000 x 1.02040 x 0.5 / 200 = 255.1 USD.

Gold and Silver

Gold and Silver have a slightly different calculation to include the current price.

Gold Margin Calculation: (100 x Price x Lot Size) / Leverage
Example 100 x 1425.00 x 1.0 = $142500 / 200 = $712.50

Silver Margin Calculation: (5000 x Price x Lot Size) / Leverage
Example 5000 x 35.5 x 1.0 = $177500 / 200 = $887.50

What is a Margin Call?

A margin call is the automatic closing of a position if the if the margin level of the position falls below the ThinkForex margin call level. For more information please review the ThinkForex margin policy.