Leverage X Margin…

Leverage X Margin… (Open)

Leverage & Margin Explained

Leverage

An account with 30:1 leverage means you can multiply your account balance by 30.

For example an account size of $500 X 30 = 15,000 (in available volume).

 

This means you can place a maximum of 15,000 AUD in volume which equates to $1.5 AUD per pip.

 

Position size explained:

 

0.05 volume = 5,000 position = $0.50 per pip

0.1 volume = 10,000 position = $1 per pip

0.2 volume = 20,000 position = $2 per pip

0.3 volume = 30,000 position = $3 per pip

0.4 volume = 40,000 position = $4 per pip

0.5 volume = 50,000 position = $5 per pip

However, remember the volume you use in your position is based on the “base” currency. You will need to convert the volume back into AUD.

Trade Example: 

 

EURUSD BUY – Market price 1.2150 (1 pip = 4th decimal place).

Stop loss = 1.2100 (50 pips difference)

 

If you were looking to risk $50 in the market you would be looking to use a volume of 0.1 which is a 10,000 position in the market. 10,000 position = $1 per pip X 50 pip stop loss which is $50 risk. 

 

However, as you are trading in EUR your position size is calculated in EUR, a 0.1 position is 10,000 EUR. Therefore, if you were looking to risk $50 AUD you would need to bring your position size down to roughly 0.06 which is a 6,000 EUR position, which converts to 9,300 AUD in volume. This will roughly take your risk to $50 AUD when converted.

 

Position size calculator

https://www.myfxbook.com/forex-calculators/position-size

 

Margin 

 

Margin is NOT the cost of the trade, nor is it what you will lose if the trade hits your SL. 

The margin is essentially the amount of money you are required to have in your trading account to place the position. 

 

Trade Example: 

Using the same trade example:

 

EURUSD BUY – Market price 1.2150 (1 pip = 4th decimal place).

Stop loss = 1.2100 (50 pips difference)

 

Using the same position as above (0.6 = 6,000 EURO), the margin requirement is roughly $312. This means you are required to have at least $312 AUD in your account to place this position. Again, this is NOT the cost of the trade. 

 

6,000 EURO = Roughly 9,300 AUD. Therefore you have used just under two thirds of your available 15,000 AUD in volume. This is based on a $500 AUD account with a 30:1 leverage (15,000 available).

 

Margin Call

 

Have you ever heard of a margin call? This is where a hedge fund or bank falls beneath the required equity levels to maintain a position. Essentially, their position has moved against them, and they either need to close down the position, or fund their position to bring their account out of margin call. The bottom line is they run the risk of the position being closed out as they have not got enough equity to cover the margin. 

 

This is the same as a retail trader. If a trade moves against you, your account can move into a “margin call”. This CAN happen even if your SL has not been activated. You may only be risking $100 in the market out of your overall balance, however you may not have sufficient equity to cover your margin requirement. This can result in a trade automatically being closed by the broker. 

 

Margin Calculator

 

https://www.myfxbook.com/forex-calculators/margin-calculator

General rule of thumb:

How to calculate the required position size…

Every one has a different amount of $ they are looking to risk per trade, however the formula is always the same.

$ risk / stop loss distance = $ per pip (in AUD).

Example:

$50 / 50 pips = $1 AUD per pip – Then convert into the “base” currency.

If you have any questions please reach out in the live chat!

Trade Setup
Leverage

Entry
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Take Profit
Margin

Stop Loss
Explained