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Thread: Margin Levels and Margin Calls

  1. #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

  2. #2
    Nk
    Guest
    Quote 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.

  3. #3
    Hi Doblece,

    Thank you for your Excuse.
    An additional question though. What's the calculation process for 'free margin'?

    Thanks.

  4. #4
    Nk
    Guest
    Quote Originally Posted by ;
    Hello Doblece,

    Thanks for your Excuse.
    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%.

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

  6. #6
    Nk
    Guest
    Quote 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

  7. #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

  8. #8

  9. #9
    Quote 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)

  10. #10
    Quote 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....
    Quote Originally Posted by ;
    Worked it out. Apologies
    Therefore, I came up with the exact same query... what was the response?

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