Margin is the amount of capital that is needed in order to open and maintain a position. means that the trader will need to have on his account a specific amount (depending on the notional value and leverage of the instrument) to be able to open such order on the trading platform. To know more about margin, you can check our useful article and look into other topics related to margin as well.
Let's familiarize ourselves with some common terms that would be encountered while calculating margin requirements.
Volume:
The volume is taken in lots where:
1.00 refers to 1 standard lot or 100,000 units of the base currency.
0.10 refers to 10,000 units of the base currency.
0.01 refers to 1,000 units of the base currency.
Contract size — Equivalent to the traded amount on the Forex or CFD market, which is calculated as a standard lot size multiplied with lot amount. The Forex standard lot size represents 100,000 units of the base currency. For CFDs and other instruments see details in the Contract Specifications page.
Leverage — The ratio of position`s notional value to the amount of margin required for opening a position (e.g., leverage 1:20 means that EUR 100,000 contract requires as low as 5 000 EUR margin).
Besides this, an approximate Margin requirement per trade can be calculated using Trading Calculator which is available under the Start Trading section of our website. Even though this calculator provides a rough estimation of selected instruments’ margins, it can be very helpful for providing an idea about calculation.
However, when the client wants to open multiple trading instruments then margin requirement calculation can be done as follows:
In order to calculate the Margin Requirement, we need to at first identify the leverage.
The ratio of margin requirement is calculated using the following formula:
Margin requirement = Total Notional Value / Leverage
If the account currency differs from the currency of the instrument, then we need to convert the currency. If the margin currency is on the first place in the currency pair and the account currency is on the second, then we need to multiply the margin by the exchange rate. If the margin currency is on the second place in the currency pair, then we need to divide the margin by the exchange rate.
For example, if we have established that the margin is 100 EUR and the account currency is USD, the we multiply 100 EUR to 1.04440. On contrary, if the margin would be 100 USD, then we would calculate as: 100 USD / 1.04440
Total notional value: Volume * Contract Size
For example, if a position is opened as: Buy 1 lot EURUSD at 1.04440.
The notional position value in the account`s currency (USD) is 1 lot * 100,000 * 1.04440 = 104,440 USD.
Here 1 lot is the volume, 100,000 is the contract size and 1.0444 is the conversion price at the moment the order was opened (the base currency is EUR, so the base currency has been converted to the account currency). The open price is taken from the trading platform at the moment the trade is opened.
If your leverage is 1:50:
The margin requirements are calculated as: Notional value / Leverage = 104,440 / 50 = 2, 088.8 USD.
Another example: Sell 2 lots GOLD at 1158.15 while the EURUSD rate in MetaTrader is 1,04068.
GOLD is quoted in USD, so the notional position value in the account`s currency (EUR) is 2 lots * 100 oz * 1158.15 / 1,04068 = 222,575.62 EUR
Therefore, a leverage of 1:50 is applied to this position and the margin requirements are calculated as 222 575,62 / 50 = 4 451, 51 EUR.
If your leverage is 1:500:
The leverage varies depending on the notional value of the instruments traded. The Margin Requirement can be found here.
In this case, first, we need to find which instrument belongs to the same category, and then find the notional value of each group of instruments. Depending on the total notional value of the instruments, the leverage would change; therefore, the margin requirement would change as well.
Each table applies to certain category of instruments. The columns of margin requirement should be checked carefully for the category of instruments as well as the trading account currency.
For example, if a position is opened as: Buy 10 lots EURUSD at 1.04440.
The notional position value in the account`s currency (USD) is 10 lots * 100,000 * 1.0444 = 1,044,400 USD, which is less than the first tier of 7,500,000 USD.
Therefore, a leverage of 1:500 is applied to this position and the margin requirements are calculated as 1,044,400 / 500 = 2,088.8 USD according to the table below:
Next, if a position is opened as: Buy 100 lots on [DAX40] at 11,467.88 while the EURUSD rate in MetaTrader is 1.04440.
[DAX40] is quoted in EUR, so the notional position value in the account`s currency (USD) is 100 lots * 11,467.88 * 1.04440 = 1,197,705.39 USD.
The above value is more than the first tier of 500,000 USD, but less than the second tier of 3,500,000 USD.
Therefore, a leverage of 1:500 is applied to the first 500,000 USD of this position and a leverage of 1:200 is applied to the remainder. So, the margin requirements are calculated as 500,000 / 500 + 697,705.39 / 200 = 4,488.53 USD.
Moreover, if a sell position is opened such as: Sell 25 lots GOLD at 1158.15
GOLD is quoted in USD, so the notional position value in the account`s currency is 25 lots * 100 oz * 1158.15 = 2,895,375 USD
The above value is more than the first tier of 500,000 USD, but less than the second tier of 3,000,000 USD.
Therefore, a leverage of 1:500 is applied to the first 500,000 USD of this position and a leverage of 1:200 is applied to the remainder. So, the margin requirements are calculated as 500,000 / 500 + 2,395,375 / 200 = 12,976.88 USD.
Let`s open an additional position on the same instrument, for example: Sell 5 lots GOLD at 1158.15.
GOLD is quoted in USD, so the notional position value in the account`s currency (USD) is 5 lots * 100 oz * 1158.15 = 579,075 USD.
The summary notional value of both positions in the account`s currency (USD) is 2,895,375 USD + 579,075 USD = 3,474,450 USD which is more than the second tier of 3,000,000 USD, but less than the third tier of 4,000,000 USD.
Therefore, a leverage of 1:500 is applied to the first 500,000 USD of the summary notional value of both positions, while a leverage of 1:200 is applied to the next 2,500,000 USD and a leverage of 1:50 is applied to the remainder. So, the margin requirements for both positions are calculated as 500,000 / 500 + 2,500,000 / 200 + 474,450/ 50 = 22 989 USD.
If you want to look into more examples, please kindly visit this page Margin Calculations on our website.