Since we have covered Leverage and how Leverage works in Forex, let’s take a look at MarginMargin is the amount of funds that the broker requires from the trader as collateral, in order to open a specific position of volume based on the leverage that the client has selected. Since a trader is allowed to use more capital than the amount he or she deposited, the broker requires an amount of funds to cover any potential losses. This amount is what we call margin. See it as a good deposit, represented as a percentage. It is the amount you need to have in your account in order to keep a position open. Let’s assume that a trader deposits €20,000 in an account with leverage 1:25. The broker has set the margin at 4%. What does this actually mean? If the trader buys 2 Lots of EURUSD at 1.2000, you can calculate the margin as 200 000 x 1.20000 = €240 000. He must have €9,600 in his account in order to keep his position open.  

More on Beginner's Education

What is Forex?

What is Forex?

Foreign exchange, or Forex for short, is the “place” where currencies are traded. Currency trading is the exchange of one type of currency for another. In the forex market, currencies are traded in pairs. When a trader buys a currency, he or she is selling another...

read more
What is a Pip?

What is a Pip?

A point in price – or pip for short – is a measure of the change in the exchange rate of a currency pair. It is the smallest unit of measurement we use when trading currencies. Most currency pairs are measured to five decimal places. For pairs such as EURUSD, GBPUSD a...

read more
What is a Bid Price/What is an Ask Price?

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...

read more
What is Forex Spread?

What is Forex Spread?

A bid-ask spread is the amount by which the ask price surpasses the bid price for an asset in the market. Essentially a spread is the difference between the ask price and the bid price. In other words, it is the cost of trading. For instance, if the Euro to US dollar...

read more