# PLEASE I need a quick clarification about margin!

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335
2014.07.13 09:31

For example I have a leveraged account with \$10,000 balance.

I open a position of 1 Lot requiring margin of \$1000.

Free Margin is now \$9000.

Market moves against me and my trade is losing \$9000, I get a margin call and the trade is automatically closed.

My question:

In the above scenario does the used margin now get released (because the position has been closed) and so now my account balance is \$1000?

Or does the used margin participate in the trade? i.e. the market can keep going against me for \$1000 more before the order is closed (so I lose all \$10,000), but just that I can't open any new positions for lack of free margin?

Thanks!

169
2014.07.13 10:30

With 1.000\$ you don't have a margin of 9.000\$

My understanding of margin and leverage is as follows:

200:1 leverage -> 0.5% margin

If you want to trade an 100.000\$ account, then you need to provide at least 2.000\$ to shift the 100.000\$ of the broker.

You get a margin call, once your trade goes against you and you lose your 2.000\$ (The cash you have). The margin call depends on your account size not the leverage.

Therefore I would never open an account with an leverage beyond 200:1. 100:1 or 50:1 would be better. You need to provide a higher margin and thus have more own capital to trade. More own capital doesn't mean that you won't run into a margin call but it makes the situation less stressing.

169
2014.07.13 10:54

To be more specific:

Your broker offers an account with a leverage of 50:1 and a minimum cash in of 300 USD.

Calculus: 1/50 * 100 = 2% -> 0.02

Means, you need to provide 2% of the capital to shift a leverage of 50:1. Say the broker likes you to provide 300 USD for a small account. Then the highest you can move is 15.000 USD.

Calculus:

15.000 USD * 0.02 = 300 USD

So once you pay in 300 USD, you can move 15.000 USD of the brokers cash. It should be clear, that you don't trade 1 LOT with this. 1 LOT == 10 USD per PIP so your max Stop Loss can be 30 PIPS (+ SPREAD (e.g. 3 PIPS)) == 27 PIPS. Once your trade goes against you and you lose 30 PIPS you get a margin call (trade closed and account has a balance of 0 USD). Total loss == 100%. Usually you have money and risk management and usually you spent max 1% for losing one trade. This means you can not trade 1 LOT with a small account. The more money you put into your account the higher the money from the broker goes. But all in all said. Your margin call depends on the cash YOU provide and not what the broker provides. If you shift 15.000 USD with your 300 USD and your trade goes against you for 2% then be sure they call you :)

28
2014.07.14 08:19

To actually answer the question, yes, once you encounter a margin call and you lose the \$9,000 the margin of \$1,000 which was 'tied up' with the broker will be released back into your account.

Note that if you had 10 trades of 0.1 lot instead of 1 trade of 1 lot then your broker would close each of the 10 trades individually, releasing the margin on each trade and allowing the remainder of the trades to use up this equity if the price keeps going against the trade - so your final balance could be as low as \$100 (the margin on 1 trade of 0.1 lots).

335
2014.07.14 17:11
d4v3:

To actually answer the question, yes, once you encounter a margin call and you lose the \$9,000 the margin of \$1,000 which was 'tied up' with the broker will be released back into your account.

Note that if you had 10 trades of 0.1 lot instead of 1 trade of 1 lot then your broker would close each of the 10 trades individually, releasing the margin on each trade and allowing the remainder of the trades to use up this equity if the price keeps going against the trade - so your final balance could be as low as \$100 (the margin on 1 trade of 0.1 lots).

Exactly what I needed! Thank you :)
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