Free Margin in forex trading in its simplest definition, is the money in your trading account that is available for trading. It is calculated by using the formula: Free Margin = Equity – Margin (of open positions). Let’s look at a relevant example. A trader enters a trade with the following conditions: Decides to buy 2 lots of EURUSD at the exchange rate of 1.20000, so the transaction will amount to 240 000 US Dollars. The required margin for this position is calculated as follows. €240 000 divided by 50. If after entering this trade, the price of EURUSD fell to 1.19050, he incurred a loss of 0.00950 pips. Which equals to €2280 (240 000 x 0.00950). In this case, the trader’s Free Margin would be: Free Margin = (10 000-2280) – 4800. Free Margin = €2920
More on Beginner's Education
What is a Bid Price/What is an Ask Price?
The Bid price is the price a forex trader is willing to sell a currency pair for. Ask price is the price at which a trader will buy a currency pair. Both of these prices are given in real-time and are constantly updating. So for example, the British pound against the...
What is Forex Spread?
What are Base and Quote Currencies?
In forex, currencies are always traded in pairs. The first currency is called the base currency and the second currency is called the quote currency. For example, EURUSD, means that the base currency is the Euro and the quote currency is the US Dollar. The quote...
