Trade Stock Indices

Trading Leverage Examples & Margin Example & Examples

Margin required : It's sum of money your broker requires from you to open a trade position. It's expressed in %s.

Equity : It's the total amount of capital that you've got in your account.

Used margin : amount of money in your account which has already been used when buying a trading contract, this contract is one that's displayed in open trade positions. As a trader you as a trader can not use this sum/amount of money after opening a trade because you have already used it and it's not available to you.

In other words, because your broker has opened up a trade for you using the capital you've borrowed, you must maintain this usable margin for your trading account as a security collateral to allow you to continue using this indices Leverage Examples he has given you.

Free margin : amount in your account which you as a trader can use to open new positions. This is amount of money in your account which hasn't yet been leveraged because you have not yet opened a position with this money - this amount is also very important for you as a trader because it facilitates you as a trader to continue holding your open transactions as it will be explained below.

However, if you over use indices Leverage Example, this free trading margin will go below a certain % at which your stock broker will be forced to close all your trades automatically, leaving you with a big loss. Broker at this point will automatically/mechanically close all your open trades because if your open trades are left open then your broker would lose the money which you'd have borrowed from them.

This is why you should always make sure you've got a lot of free margin. In order to do this never trade more than 5 percentage of your account, in fact two percent is advised.

Difference Between Leverage Examples Set by the Broker & Used Leverage Example

If the set indices Trading Leverage Example is 100: 1, it means you as a trader can borrow upto $100 for every $1 dollar which you have, but you do not have to borrow all of the $100 for every $1 dollar you've, but you as a trader can decide to borrow 50:1 or 20:1. In this case even though the leverage ratio set 100:1 your used indices Trade Leverage Examples will be 50:1 or 20:1 that you have borrowed to make a trade position.

Example:

You have $1000 (Equity)

Set 100:1

Leverage Examples Used = Amount used /Equity

If you buy index lots equal to $100,000 you'll have used

= 100,000/1000

= 100:1

If you buy lots equal to $50,000 that as a trader you'll have used

= 50,000/1000

= 50:1

If you buy trading lots equivalent to $20,000 that as a trader you will have used

= 20,000/1000

= 20:1

In these 3 cases you as a trader can see that though the set is 100:1

The used leverage is 100:1, 50:1, 20:1 depending on size of lots traded.

So Why not Just Choose and Select 10:1 option as the Maximum Leverage Example? Because to keep within the suitable risk management guidelines/rules it's even advised that traders use than this?

This question might seem straight forward but it is not, because when you trade you as a trader use borrowed money referred to as Leverage Example. When you borrow capital from anyone or from a bank you as a trader must maintain a security/collateral to obtain a loan, even if the collateral is depending on monthly deductions from your own salary, same thing with Trading.

In trading the security is known as margin. This is the capital that you deposit with your broker.

This is calculated in realtime as you trade. To keep your borrowed money you as a trader must maintain what is referred to as required capital (your deposit).

Now if Your Leverage Examples is 100:1

When trading if you have $1,000 and use leverage ratio 100:1 and buy 1 standard lot for $100,000 your margin on this trade is the $$1000 in your account, this is the money that you will lose if your open trade moves against you, the other amount $99,000 that's borrowed, they will close the open trade transactions automatically once your $1,000 has been taken out by the market.

But this is if your broker has set 0% Margin Requirements before closing out your trade positions mechanically.

For 20% requirement before liquidating your stock trades automatically/mechanically, then your trades will be stopped out once your account balance reaches $200

For 50 % requirement for this level before liquidating your stock trades mechanically/automatically, then your trades will be closed once your trading account balance reaches $500

If they set 100% requirement for this level before liquidating your open positions automatically, then your trade will be closed once your balance gets to $1,000: Explanation the trade will close-out as soon as you open it because even if you pay 1 pip spread your account balance will drop to $990 dollars & the needed percentage is 100 % i.e. $1,000, thenceforth your open trade orders will immediately get stopped out.

Most brokers do not set 100% requirement, but there are those that do set 100% are not appropriate for you at all, select those set 50 percent or 20 percentage margin requirement, in fact, those online brokers who set at 20 % are among the best because the likely-hood they close-out your trade is reduced such as displayed in the exemplification laid-out above.

To know about this level which is calculated by your trading platform software mechanically - the MT4 Platform Software will show this as "Indices Margin Requirement", This will be displayed and illustrated as a percent higher the percentage the less likely your trade positions are to get closed.

For Example if

Using 100:1

If indices Leverage Example is 100:1 & you trade lots equivalent to $10,000

$10,000 dollars divide by 100:1, used equity is $100 dollars

Calculation:

= Capital Used * Percent(100)

= $1,000/$100 * Percentage

Index Margin Requirements = 1000 %

Trader and Investor has 980 percent above requirement amount

Using 10:1

If indices Trading Leverage Example is 10:1 & you trade lots equivalent to $10,000

$10,000 dollars divided by 10:1, used equity is $1000 dollars

Calculation:

= Capital Used * Percent(100)

= $1,000/$1000 * Percentage

Indices Margin Requirement = 100%

Investor and Trader has 80% above the requirement amount

Because when a trader has a higher indices Trading Leverage Example means that they have more percent above what is required (A.K.A. Known As More "Free Margin") their open transactions are less likely to get closed. This is reason why traders will select ratio 100:1 for their account but in accordance to their equity money management guidelines, these traders will not trade above 5:1.

These Zones are Shown on the Platform Image Below as an Example:

How Leverage Greatly Increases Profits and Losses and The Best Leverage

MT4 Software Platform

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