How to Calculate Required Margin.

How do calculate the required margin in forex.

When trading with margin, the amount of margin (“Required Margin”) you need to hold open a position is calculated as a percentage (“Margin Requirement”) of the position size (“Notional Value”).

We calculate the specific amount of required margin according to the base currency of the currency pair traded.

If the base currency differs from your trading account’s currency, we then converted the Required Margin to your account denomination.

Here is the formula to calculate the Required Margin:

If the base currency is the SAME as your account’s currency,

Required Margin = Notional Value x Margin Requirement

If the base currency differs from your account’s currency,

Required Margin = Notional Value x Margin Requirement x Exchange Rate Between Base Currency and Account Currency

The only reason for having funds in your account is to make sure you have enough margin to use for trading.

With trading forex, your ability to open trades is not based on the funds in your account balance. More accurately, it’s based on the amount of margin you have.

This means that your broker is always looking to see if you have enough margin in your account, which can actually differ from your account balance.

Recap

In this lesson, we learned about:

• Margin Requirement is the amount of margin required to open a position.  It is expressed as a percentage (%) of the “full position” size or “Notional Value” of the position you wish to open.
• Required Margin is the amount of money set aside and “locked up” when you open a position.

In previous lessons, we learned:

• What is Margin Trading? Learn why it’s essential to understand how your margin account works.
• What is Balance? Your account balance is the cash you have available in your trading account.
• What is Unrealized and Realized P/L? Know how profit or losses affect your account balance.

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