Margin Calculator (Forex)
Following the above field, we need to give details of two more concepts that are necessary for a full understanding of Forex:
1. Leverage is the % of the amount of the money that a brokerage firm lends us in addition to our nominal capital, in order to open a long (up) or a short (down) position. Leverage works as a multiplier of the capital invested, e.g. a common leverage in Forex is 100: 1. In simple terms, in this case, if we have a capital of $10.000, we could open a $1.000.000 position.
2. Margin is the guarantee amount for opening a position through a broker, e.g. if we believe the cathode of the EURUSD pair and we have a euro account, the margin needed to open a position of 100.000 (1 standard lot) with 100: 1 leverage at 1.3150 EURUSD price, is €1.315. Leverage in conjunction with margin, meaning that if we have the above position, for every 1% positive or negative change to our preferred direction, we could have doubled or lost all the guaranteed amount (margin) respectively. Of course this scenario is extreme and highly dangerous. In practice we seek for our positions to have controlled risks in order to have positive results in a medium / long timeframe.
3. Calculating Margin Method:
Suppose that we have the GBPAUD pair (buying or selling) and our account is calculated in EUR.
Base Currency: GBP
Counter Currency: AUD
Account Currency: EUR
Lot Size: 1.000
Leverage: 100: 1
The margin calculation formula is the following:
Margin = (Base Currency / Currency Account) * Lot Size / Leverage
Currency Account / Base Currency (EURGBP): 0.7916, e.g. the current value of the pair and reversing the pair, we have again the same value which is the following:
Base Currency / Currency Account (GBPEUR): 1.2633
Then the margin required is:
Margin = 1.2633 * 1.000 / 100 = €12.63
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