leverage, margin, balance, equity, free margin, margin call and stop out level in fx

Dear Brother! Forex business main ye sab cheeze bohar hi important hain. Is sab cheezon ko trading karny say phely samjh lena chiye. Forex main ye sab cheeze trading main humary kaam ati hain.

Leverage:

Leverage is a feature offered by the broker, to help the traders to trade larger amounts of securities by having a smaller account balance. For example, when your account leverage is 100:1, you can buy $100 by paying $1. Therefore, to buy $100,000 (one lot), you should pay only $1000 (this is just an example. I know nobody pays dollar to buy dollar ;) )

Now you tell me please. How much you have to pay to buy 10 lots USD with an account that its leverage is 50:1 ?

That is right. You have to pay $20,000 to buy 10 lots or $1,000,000 USD:

$1,000,000 / 50 = $20,000

Margin is calculated based on the leverage, but to understand the margin, lets forget about the leverage for now and assume that your account is not leveraged or indeed its leverage is 1:1

Margin is the amount of the money that participates in a position or trade. Let’s say you have a $10,000 account and you want to buy €1,000 against USD. How much US dollars do you have to pay to buy €1,000?

EUR/USD rate is currently 1.4314. It means each Euro equals $1.4314. Therefore, to buy €1,000, you have to pay $1,431.40:

€1,000 = 1000 x $1.4314

Therefore:

€1,000 = $1,431.4

If you take a 1000 EUR/USD long position (you buy €1000 against USD), $1,431.4 from your $10,000 account has to participate in this position. When you set the volume to 0.01 lot (1000 unit) and then you click on the buy button, $1,431.4 from your account will be paid to buy 1000 Euro against USD. This $1,431.4 is called margin. Now, if you close your EUR/USD position, this $1,431.4 will be released and will be back to your account balance.

g bilkul ye sab chizen hume samajni chahiyen take hum ko trading start karte wakt mushkil na ho in chizon kahin doston ko nahi pata apne acha kia ke sab ko btata diya hai

Now let’s assume that your account has a 100:1 leverage. To buy 1000 Euro against USD, you have to pay 1/100 or 0.01 of the money that you had to pay when your account was not leveraged. Therefore, to buy 1000 Euro against USD, you have to pay $14.31:

$1,431.4 / 100 = $14.31

Now, please tell me that if you take a one lot EUR/USD with an account with the leverage of 100:1, how much margin will participate in the trade?

One lot EUR/USD = 100,000 Euro against USD
EUR/USD rate: 1.4314
100,000 x 1.4314 = 143,140.00
Therefore:
One lot EUR =$143,140.00

Leverage: 100:1

Margin = $143,140.00 / 100 = $1,431.40

Therefore, to have a one lot EUR/USD position with a 100:1 account, $1,431.40 margin is needed.

Balance:

When you have no open position, balance is the amount of the money you have in your account. For example, when you have a $5000 account and you have no open position, your account balance is $5000.

Equity:

Equity is your account balance plus the floating profit/loss of your open positions:

Equity = Balance + Floating Profit/Loss

When you have no open position, and so no floating profit/loss, then your account equity and balance are the same.

When you have some open positions and for example they are $1,500 in profit in total, then your account equity is your account balance plus $1,500. If your positions were $1,500 in loss, then your account equity would be your account balance minus $1,500.

my dear jitni ziada leverage ho gi utna hi ap ka margin km use ho ga or ap- k paas free margin ziada rahe ga or jo baqi balance bachey ga jo trade mein use ho ga or jo up or down ho hota rahe gaus ko equity kehte hain

Free Margin:

Free margin is the difference of your account equity and the open positions’ margin:

Free Margin = Equity – Margin

When you have no position, no money from your account is used as the margin. Therefore, all the money you have in your account is free. As long as you have no position, your account equity and free margin are the same as your account balance.

Let’s say you have a $10,000 account and you have some open positions with the total margin of $900 and your positions are $400 in profit. Therefore:

Equity = $10,000 + $400 = $10,400

Free Margin = $10,400 – $900 = $9,500

Margin Level:

Margin level is the ratio of equity to margin:

Margin Level = (Equity / Margin) x 100

Margin level is very important. Brokers use it to determine whether the traders can take any new positions or not. Different brokers have different limits for the margin level, but this limit is usually 100% with most of the brokers. This limit is called Margin Call Level.

Let’s say you have a $10,000 account and you have a losing position with $1000 margin. If your position goes against you and it goes to a -$9000 loss, then the equity will be $1000 ($10,000 – $9,000), which equals the margin. Therefore, the margin level will be 100%. If the margin level reaches 100%, you will not be able to take any new positions, unless the market turns around and your equity becomes greater than the margin.