Since we have covered Leverage and how Leverage works in Forex, let’s take a look at Margin. Margin 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.
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What is a Lot in Forex?
Currency pairs are always traded in “lots”. A "lot" represents the amount of the currency pair that you are buying or selling. The three most common types of lots are the standard, the mini and the micro. One standard lot is equal to 100,000 units of the base...
