Margin Levels and Margin Calls

# Thread: Margin Levels and Margin Calls

1. Hello,

I am new to Forex and only started working my way through babypips but I've a question which I can't seem to get an answer to.

According to ibfx (not sure if url link is permissible here), margin level is defined as:

margin level = current equity in the account current quantity of margin in use

I've heard that brokers will make margin calls if margin levels are at 50 percent, sometimes 80%. I do not understand why this is the case.

I would think that so long as the equity in the account is equal to or greater than the sum necessary to start the place which the trade could be sustained.

I can observe a margin call if a fluctuation of a single pip would bring the equity under this amount but I don't see how a 50% margin affects this.

If someone could provide some case numbers maybe it might help clear this one up for me.

Thanks,

Fortexwindo  Reply With Quote

2. Originally Posted by ;
margin level = current equity in the account / current quantity of margin in usage

I have heard that brokers will make margin calls when margin levels are at 50%, sometimes 80%....
Margin level (percent) is in reality Equity/Used Margin x 100

Certainly one of my own brokers, for instance, starts issueing a margin call at 10%:

Equity (Balance minus P/L) = 1000
Margin in Use = 10000

At 50%, which would be when dividend at precisely the same case over, is at 5000 with a utilized margin of 10000. As soon as P/L makes it fall below 5000 the margin call is triggered. In other words, they permit your P/L to consume around half of the margin required before shutting you up (90% of it at the previous case).

What you say (fluctuation of one pip) is precisely the same, but in your case you would be having a margin call below 100% (equity equal to margin required/used) = Equity 10000, margin utilized 10000.  Reply With Quote

3. Hi Doblece,

An additional question though. What's the calculation process for 'free margin'?

Thanks.  Reply With Quote

4. Originally Posted by ;
Hello Doblece,

One more question though. What's the calculation method for 'free margin'?

Thanks.
Balance plus/minus profit/loss = Equity

Equity minus utilized (required) margin = accessible (or free) margin

Example:

Balance is 10000 having a open position of 1 lot that is shedding 20 pips. Margin required is 1000. P/L is 20x10 = 200.

Equity is 9800, also absolutely free margin 8800 (equity less margin already in use).
That offers you a margin amount of 980%.  Reply With Quote

5. That makes things clearer. Thank you very much Doblece. And sorry for the trouble.  Reply With Quote

6. Originally Posted by ;
Ah that makes things clearer. Thank you very much Doblece. And sorry for the problem.
No trouble at all, and glad it helped  Reply With Quote

7. Hello,

I have a problem regarding the AccountEquity() value Within an MT4 backtest I'm doing.

The Account Balance is \$2000
The Base CCY is USD
The TickValue as reported by MT4 is \$9.31

I take a short position on USDCHF of 0.01 lots @ 1.70370. Leverage is 500:1 so required margin is just \$2.

The price moves against me to 1.82902, that's a move of 0.12532 or 1253.2 pips.

My drawdown calculation is: 1253 (pips) * 9.31 (pip Worth) * 0.01 (lots) = \$116.67 (a drawdown of \$116.67).

However MT4 is reporting my AccountEquity() is \$1928.75. (that's just a drawdown of \$71.25)

Am I overlooking some thing. Aren't these two values the same? It is driving me CRAZY!!!!!

If anyone can put me straight I would VERY much appreciate it.

Due
Roy  Reply With Quote

8. Out it. Apologies  Reply With Quote

9. Originally Posted by ;
I would think that as long as the equity in the account is equal to or greater than the amount required to open the place which the trade could be sustained.
I dont know that!

Oanda closes at 50 percent, so if your balance is 1000 and you open a trade for 200, you receive a margin closeout when you equity drops to 100.

But in 50 percent, why not 0 percent (or 1% to cover sudden drops)  Reply With Quote

10. Originally Posted by ;
Hello,

I've a problem about the AccountEquity() worth in an MT4 backtest I Am doing.

The Account Balance is \$2000
The Base CCY is USD
The TickValue as reported by MT4 is \$9.31

I take a Brief position on USDCHF of 0.01 lots @ 1.70370. Leverage is 500:1 so necessary margin is only \$2.

The price moves against me to 1.82902, that's a move of 0.12532 or 1253.2 pips.

My drawdown calculation is: 1253 (pips) * 9.31 (pip Value) * 0.01 (lots) = \$116.67 (a drawdown of \$116.67).

Nevertheless MT4 is reporting that my AccountEquity() is \$1928.75.... Originally Posted by ;
Worked it out. Apologies
Therefore, I came up with the exact same query... what was the response?  Reply With Quote

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