Margin in practice account changing

[fathogg62]

Hey guys im practicing in MT5 and at the bottom in the "TRADE" tab the margin keeps changing.

BALANCE - EQUITY -  MARGIN -  FREE MARGIN - MARGIN LEVEL.

Why is this changing?

Could you also explain what free margin and margin level are?

[Francis Dogbe]

fathogg62:

Hey guys im practicing in MT5 and at the bottom in the "TRADE" tab the margin keeps changing.

BALANCE - EQUITY -  MARGIN -  FREE MARGIN - MARGIN LEVEL.

Why is this changing?

Could you also explain what free margin and margin level are?

1. Free Margin:

Free margin is the difference of your account equity and the open positions’ margin:

Free Margin = Equity – Margin

When you have no position, no money from your account is used as the margin. Therefore all the money you have in your account is free. As long as you have no position, your account equity and free margin are the same as your account balance.

Lets say you have a $10,000 account and you have some open positions with the total margin of $900 and your positions are $400 in profit. Therefore:

Equity = $10,000 + $400 = $10,400

Free Margin = $10,400 – $900 = $9,500

2. Margin Level:

Margin level is the ratio of equity to margin:

Margin Level = (Equity / Margin) x 100

Margin level is very important. Brokers use it to determine whether the traders can take any new positions or not. Different brokers have different limits for the margin level, but this limit is usually 100% with most of the brokers. This limit is called Margin Call Level. 100% margin call level means if your account margin level reaches 100%, you can still close your open positions, but you cannot take any new position. Indeed, 100% margin call level happens when your account equity equals the margin. It happens when you have losing position/positions and the market keeps on going against you and when your account equity equals the margin, you will not be able to take any position.

Lets say you have a $10,000 account and you have a losing position with $1000 margin. If your position goes against you and it goes to a loss of -$9000, then the equity will be $1000 ($10,000 – $9,000), which equals the margin. Therefore the margin level will be 100%. If the margin level reaches 100%, you will not be able to take any new position, unless the market turns around and your equity becomes greater than the margin.

But what if the market keeps on going against you?

If the market keeps on going against you, the broker will have to close your losing positions. Different brokers have different limits for this too. This limit is called Stop Out Level. If your margin level reaches 5%, our system starts closing your losing positions automatically. It starts from the biggest losing position. Usually, closing one losing position will take the margin level higher than 5%, because it will release the margin of that position and so the total margin will go lower and the equity will go higher and therefore the margin level will go higher. The system takes the margin level higher than 5% by closing the biggest losing position first. However, if your other losing positions keep on losing and the margin level reaches 5% again, the system will close another losing position.

Why the broker closes your positions when the margin level reaches the Stop Out Level?

The reason is that the broker can not allow you to lose more than the money you have deposited in your account. The market can keep on going against you forever and the broker can not pay for this continuous loss. It makes sense, doesn’t it?

[Rogerio Figurelli]

Roszey:

1. Free Margin:

Free margin is the difference of your account equity and the open positions’ margin:

Free Margin = Equity – Margin

When you have no position, no money from your account is used as the margin. Therefore all the money you have in your account is free. As long as you have no position, your account equity and free margin are the same as your account balance.

Lets say you have a $10,000 account and you have some open positions with the total margin of $900 and your positions are $400 in profit. Therefore:

Equity = $10,000 + $400 = $10,400

Free Margin = $10,400 – $900 = $9,500

2. Margin Level:

Margin level is the ratio of equity to margin:

Margin Level = (Equity / Margin) x 100

Margin level is very important. Brokers use it to determine whether the traders can take any new positions or not. Different brokers have different limits for the margin level, but this limit is usually 100% with most of the brokers. This limit is called Margin Call Level. 100% margin call level means if your account margin level reaches 100%, you can still close your open positions, but you cannot take any new position. Indeed, 100% margin call level happens when your account equity equals the margin. It happens when you have losing position/positions and the market keeps on going against you and when your account equity equals the margin, you will not be able to take any position.

Lets say you have a $10,000 account and you have a losing position with $1000 margin. If your position goes against you and it goes to a loss of -$9000, then the equity will be $1000 ($10,000 – $9,000), which equals the margin. Therefore the margin level will be 100%. If the margin level reaches 100%, you will not be able to take any new position, unless the market turns around and your equity becomes greater than the margin.

But what if the market keeps on going against you?

If the market keeps on going against you, the broker will have to close your losing positions. Different brokers have different limits for this too. This limit is called Stop Out Level. If your margin level reaches 5%, our system starts closing your losing positions automatically. It starts from the biggest losing position. Usually, closing one losing position will take the margin level higher than 5%, because it will release the margin of that position and so the total margin will go lower and the equity will go higher and therefore the margin level will go higher. The system takes the margin level higher than 5% by closing the biggest losing position first. However, if your other losing positions keep on losing and the margin level reaches 5% again, the system will close another losing position.

Why the broker closes your positions when the margin level reaches the Stop Out Level?

The reason is that the broker can not allow you to lose more than the money you have deposited in your account. The market can keep on going against you forever and the broker can not pay for this continuous loss. It makes sense, doesn’t it?

Hi Roszey, nice answer, anyway, next time, please put the original source link, just in case you are using some external content. Thanks.

[fathogg62]

Im confused. Here's my practice account info:

Balance: 49,480.80 USD   Equity: 48,792.09   Margin: 900.00   Free Margin: 47,892.09   Margin Level: 5,421.34%

I get that free margin is equity minus margin that makes sense, but how is my margin level over 5000% and still letting me make orders?

Also just to clarify.  The Margin ($900) on this account, that is like if I opened a real account and deposited ($500) right?

And isn't the Balance my margin with adding in the leverage?

Just want to make sure I get these concepts.

[Alain Verleyen]

figurelli:
Hi Roszey, nice answer, anyway, next time, please put the original source link, just in case you are using some external content. Thanks.

http://basictradingforex.blogspot.be/2012/12/balance-equity-free-margin-and-margin.html

[Rogerio Figurelli]

angevoyageur:

http://basictradingforex.blogspot.be/2012/12/balance-equity-free-margin-and-margin.html

Thanks, this url and several others when I google it to double check ...