How to Trade - Forex Margin, Balance and Equity

Use of forex margins can significantly magnify any profit or loss in forex trading. Forex margins are usually represented in percentage. The standard practice for minimum margin requirement for major currency pairs is 1%. However this requirement should be flexible upon your need and your broker's offer. The minimum margin requirement can also be as low as 0.25%.

So in any event, the minimum margin requirement amount is all a trader is risking at any event. This guarantees that a trader will never pay a debit balance in the event of loss as a result of trading.

Balance refers to the value of funds in the account. It excludes profits and losses made on any open positions. In the figure above, the balance is at $1085.94

Equity refers to the "floating" value of funds in the account. It includes profits and losses on any open positions. In another words, equity reflects to me the real time true value of my account.

Equity = Floating Value + Profit - Losses - spreads = Usable Margin + Used Margin

Margin account refers to an account that allows a trader to borrow money from a forex broker. In any event of losing trade, the maximum amount any trader can lose at any given time can not exceed the margin account amount.

Used margin is the amount of account equity locked in by broker to maintain open positions. I think of used margin as a security deposit to open a live trade.