FREE MARGIN, in its simplest definition, is the money in your trading account that is available for trading.
It is calculated by using this basic formula:
Remember that EQUITY is the BALANCE, plus or minus any profit or loss from open positions. Let's take a look at this example. Say that someone enters a trade with the following conditions: Decides to buy 2 lots of EURUSD (Euro to U.S Dollar) at the exchange rate of 1.2000.
So, the transaction will amount to 240,000 U.S Dollars.
The required MARGIN for this position is calculated as follows: 240,000 / 50.
If after entering this trade, the price of EURUSD (Euro to U.S Dollar) fell to 1.19050, he incurred a loss of 0.00950 pips.
Which is equivalent to:
In this case, the trader's FREE MARGIN would be:
10,000 (BALANCE) - 2280 (LOSS) = 7720
7720 (TOTAL EQUITY) - 4800 (MARGIN) = 2,920 (FREE MARGIN)
In the next blog, I will tell you about MARGIN LEVEL. So see you at the next blog. God Speed :)
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