The margin is a percentage of the money you would place down as you open a new trading position. It’s a percentage of the total amount you agreed to invest. A used margin is the amount already assigned to open positions.
What Used Margin Is and Is Not
When understanding what a used margin is, it also helps to explore more what a margin is in general. Margins are not a financial fee, and they don’t constitute a transaction cost. Either you or your broker just simply sets aside some funds that guarantee you can cover any potential trade losses.
Think of a margin as collateral used the same way you would a loan. The used margin is the sum of your locked, open trading positions. In other words, it’s the sum of your required margins.
The “Required Margin” Connection to “Used Margin”
It’s easier to understand the used margin after you see its connection to the “required margin.” You might also have heard it be called deposit, entry, or initial margin. This percentage locks a deposit amount you commit to for a specific trade duration.
Required Margin Examples at “Notional Value”
Notional value is the static worth of an investment product. You adjust it based on the currency pair margin requirement. This is how you get the required margin figure.
Currency Pair Margin Requirements
An issue related to required margin is the margin requirement. This percentage varies based on currency pairs. Here’s some popular transaction examples.
EUR/USD — 2% margin requirement
This currency pair’s margin requirement figures a required margin to be $2,000 if you open a $10,000 EUR/USD position (calculated at notional value).
GBP/USD — 5% margin requirement
For this example, you decided to deposit $1,000 into your account. In this case, you also chose to open one mini lot at 10,000 units at 1.3000 for this currency pair. If your base trading currency is GBP, the notional value for this transaction equals $13,000. At 5% against the notional value, your required margin would be $650.
USD/JPY — 4% margin requirement
For this example, you are trading in USD, and the stock mini lot notional value is $10,000. In this case, the required margin at 4% for this USD/JPY currency pair totals $400.
EUR/AUD – 3% margin requirement
For this example, the trade amount is at 1.15000. Perhaps you want to trade on a mini-lot of 10,000 euros, of which the notional value is $11,500. At 3% for this currency pair, the required margin would be $345.
Used Margin Sum Example
Let’s say you open two trades for which the required margins are $400 and $300. Both of these together are your used margin sum, which totals $700. It’s what is required to maintain all your currently open trading positions.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.