How Margins and Leverage Work

Get to know how we operate with regards to margins and leverage

Below are explanations of how margin requirements and leverage levels are calculated, with several working examples for traders both new and experienced.

Please also see our Margin Calculator to simulate hypothetical trades and how margin levels are affected by different price changes.

Leverage / Margin Requirements

  • Our standard Leverage offered is 1:100 (1% margin requirement)
  • We may offer up to a maximum of 1:200 leverage (0.5% margin requirement) on a case by case basis
  • XAUUSD is always 1:100 leverage (1% margin requirement) regardless of the accounts leverage setting.

Margin Call / Stop Out Levels

  • Margin Call @ 120% Margin Level
  • Margin Stop Out @ 100% Margin Level

It is important to note that in the event of a market gap the Margin Stop may not protect an account from going into negative balance. The more exposure carried, the higher the risk of a negative balance occurring.


Margin Level %

Margin Level % = Free Equity / Used Margin * 100

The Margin Level % is the ratio of Equity to Used Margin represented as a percentage. This percentage is very important as it shows how much equity is available to cover the used margin.

  • If the Margin Level dips below 120% the Terminal will light up red as a warning.
  • If the Margin Level dips below 100% trades will be closed to free up margin.

Margin Calls and Stop Outs

  • In MT4, Margin Call is at 120% margin level. Margin level is calculated by Equity divided by used margin. It is advised that you should either close off positions to free up margin or add additional funds to increase available margin.
  • Stop out occurs when margin level reaches 100%. This means that Equity divided by used margin equals 1. In other words equity has dropped so low that it equals the used margin. For example if you have $5,000 balance, $500 margin and a -$4,500 sustained loss resulting in $500 running equity.

Equity divided by margin = $500/$500 = 1 or 100%


Calculating Required Margin for FX Trades and Silver

Margin Required = Volume in Lots x Contract Size x Margin Requirement

  • Contract size for FX and Silver is 100,000
  • Converted into account denomination

FX Trade example

Assume you have a EUR MT4 Account with 1:100 leverage. You want to enter a 1 lot sell trade for AUDJPY at 76.150:

1 Lot x 100,000 x 1% = 1,000 Required Margin

Because AUD is the base of the currency pair, we need to convert to EUR by dividing by the EURAUD rate, which is 1.46136:

1,000 ÷ 1.45136 = 684.19 Required Margin in EUR


Calculating Required Margin for Gold Trades

  • Contract size for Gold is 100
  • Converted into account denomination

Gold Trade example

Assume you have a CAD MT4 Account with 1:200 leverage. You want to enter a 1 lot sell trade for XAUUSD at 1,364.63:

1 Lot x 100 x 1,364.63 x 1% = 1,364.63 Required Margin

Note that since maximum leverage for precious metals is 1:100 the margin requirement will be no lower than 1%.

Because XAU is the base of the pair, we need to convert it. This can be done by multiplying 1,364.63 by the USDCAD rate, which is 1.30410 at the time of opening the trade:

1,364.63 x 1.30410 = 1,779.61 Required Margin in CAD


Used Margin

  • Your Used Margin grows by each trade’s required margin. In MT4, all required margins are according to the base currency of the currency pair traded. The used margin is then converted to your account denomination.
  • In MT4, Used Margin is referred to simply as Margin.

Multiple Trades example

Assume you have an AUD MT4 Account with 1:100 leverage and you have 3 buy trades for AUDUSD, XAUUSD and GBPAUD:
Buy 1 Lot AUDUSD

1 Lot x 100,000 x 1% = 1,000 Required Margin

Because AUD is the base of the currency pair, no conversion is required since your MT4 account currency is AUD.
Buy 1 Lot XAUUSD, with current market price of XAUUSD at 1,368.61

1 Lot x 100 x 1,368.61 x 1% = 1,368.61 Required Margin

Because XAU is the base of the pair, we need to convert it. This can be done by dividing 1,368.61 by the AUDUSD rate, which is 0.75029 at the time of opening the trade:

1,368.61 ÷ 0.75029 = 1,824.11 Required Margin in AUD

Buy 1 Lot GBPAUD

1 Lot x 100,000 x 1% = 1,000 Required Margin

Because AUD is the term of the currency pair, we convert to AUD simply by multiplying by the GBPAUD rate, which is 1.72510

1,000 x 1.72510 = 1,725.10 Required Margin in AUD

By summing all the required margins you will have a Used Margin of 4,549.21.
To get the Margin Level in MT4, assuming your equity hasn’t changed from the original balance, divide 10,000 by 4,549.21 and multiply by 100 to get:

10,000 ÷ 4,549.21 x 100 = 219.81%

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The information on this website is not intended to be an inducement, offer or solicitation to anyone outside of Australia. Global Prime Pty Ltd, ABN 74 146 086 017, (Global Prime) holds an Australian Financial Services Licence (AFSL) to carry on financial services business in Australia, limited to the financial services covered by its AFSL no.385620.

 

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