ALB Limited 21.04.2023

What is margin in forex and how to use it for profits

Margin, which means collateral, is used in the forex market with different terms. While the amount used when opening a position is called the initial margin, we can understand how many positions we can open by looking at our money, which appears in the free margin. At this point, "what is the margin in forex trading?" is a curious subject. In this article, we will provide information on what margin means in forex trading and answer any questions you may have about it.

Margin Level Forex   

Margin is one of the most popular terms used in the forex market. In other words, it is a term that reflects the minimum amount of money required to open a position. Of course, this amount varies depending on which parity you are trading and the leverage ratio of that transaction.

Margin, which is very important for the investor, is also called the initial margin. By looking at the free margin value, we can understand how many positions can be opened with our capital. We can think of margin calculation as risk management. It is an excellent method to eliminate loss in forex, a market dominated by the leverage system. Therefore, it is helpful to learn how to calculate margins. The margin calculation is based on a relatively easy formula. If we try to explain it by getting rid of mathematical terms as much as possible, we can explain it as follows:

What is Free Margin in Forex?

A free margin is money you can use in your account after opening a position. So, the free margin is the amount left in your account after opening a position and depositing the required margin. This amount is determined by subtracting the total amount of collateral you have paid from your balance and adding the profit or loss, which may vary instantaneously across parities. With the amount in the capital, it can be understood how many positions can be opened. When the available collateral value drops to zero, the open position or positions are closed. This situation is called a "Margin Call."

What is Margin?   

In a commercial transaction, the share set aside for the possibility of loss is called the margin. The literal meaning of margin is share. The initial amount taken as collateral to open a position in leveraged transactions and transactions made by the customer is called the initial margin or initial margin. The margin here is the minimum collateral required for the transaction to be made. The margin level is a critical point to consider in the forex market. We find our margin level by dividing the asset/free margin. 

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