## Margin forex formula

### How to Calculate Leverage, Margin, and Pip Values in Forex, with Examples

Leverage and Margin Most forex brokers allow a very high leverage ratio, or, to put it differently, have margin forex formula low margin requirements. This is why profits and losses can be so great in forex trading even though the actual prices of the currencies themselves do not change all that much—certainly not like stocks.

Stocks can double or triple in price, margin forex formula, or fall to zero; currency never does. Because currency prices do not vary substantially, much lower margin requirements is less risky than it would be for stocks. Such leverage ratios are still sometimes advertised by offshore brokers.

However, inUS regulations limited the ratio to The purpose of restricting the leverage ratio is to limit the risk. The margin in a forex account is often referred to as a performance bond, because it is not borrowed money but only the amount of equity needed to ensure that you can cover your losses.

In most forex transactions, nothing is actually being bought or sold, margin forex formula, only the agreements to buy or sell are exchanged, so borrowing is unnecessary, margin forex formula. Thus, no interest is charged for using leverage. Thus, buying or selling currency is like buying or selling futures rather than stocks. The margin requirement can be met not only with money, margin forex formula, but also with profitable open positions.

The equity in your account is the total amount of cash and the amount of unrealized profits in your open positions minus margin forex formula losses in your open positions. In most cases, however, the margin forex formula will simply close out your largest money-losing positions until the required margin forex formula has been restored.

The leverage ratio is based on the notional value of the contract, using the value of the base currency, which is usually the domestic currency. Often, only the leverage is quoted, since the denominator of the leverage ratio is always 1. The amount of leverage that the broker allows determines the amount of margin that you must maintain. To calculate the amount of margin used, multiply the size of the trade by the margin percentage.

Subtracting the margin used for all trades from the remaining equity in your account yields the amount of margin that you have left. How many more Euros could you buy? Because the quote currency of a currency pair is the quoted price hence, the namethe value of the pip is in the quote currency. If the conversion rate for Euros to dollars is 1. Converting Profits and Losses in Margin forex formula to Native Currency To calculate your profits and losses in pips to your native currency, you must convert the pip value to your native currency.

When you close a trade, margin forex formula, the profit or loss is initially expressed in the pip value of the quote currency, margin forex formula. To determine the total profit or loss, you must multiply margin forex formula pip difference between the open price and closing price by the number of units of currency traded.

This yields the total pip difference between the opening and closing transaction. If the pip value is in your native currency, then no further calculations are needed to find your profit or loss, but if the pip value is not in your native currency, then it must be converted. There are several ways to convert your profit or loss from the quote currency to your native currency. If you have a currency quote where your native currency is the base currency, then you divide the pip value by the exchange rate; if the other currency is the base currency, then you multiply the pip value by the exchange rate.

Subsequently, you sell your Canadian dollars when the conversion rate reaches 1. For a cross currency pair not involving USD, the pip value must be converted by the rate that was applicable at the time of the closing transaction. Search This Site Privacy Policy for thismatter. Information is shared about your use of this site with Google. Details, including opt-out options, are provided in the Privacy Policy. Note that opt-out choices are also stored in cookies.

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### Margin Calculation: Retail Forex, Futures - For Advanced Users - MetaTrader 5 