What is Margin?

In forex trading, using leverage we can have high value transactions by guaranteeing a small amount of money. This security deposit is called Margin . Usually each trading company is different in determining the Margin value. When trading, one that determines the value of risk is assessed from the Margin retention rate.

The formula determines the retention rate Margin = {Total Mark to Market / Margin Value required x 100}.

Margin Determination

If Leverage is expressed as a ratio (like 1:50), then the margin is expressed as a percentage: If you set leverage at 1:50, the margin will amount to 2% of the volume of the order. While if you set leverage at 1: 100, the margin amounts to 1% of the order volume. Like the leverage ratio, margin requirements vary depending on different currency pairs.

Difference in Margin & Margin Call

In forex trading, even though we can make transactions for large values ​​using a small margin, there is still a risk of losses that can swell. If the value exceeds 50% of Margin, the Trading company will give a warning to investors. This warning is called "Margin Call", which is so that investors add the Margin value. Investors who get a Margin Call, must add a Margin value or if it cannot be done, then the Trading company will execute by force and this action is called "Cut Loss". With the provision such as Margin Call and Cut Loss, it can minimize the value of investor losses and be a safety device.