Forex Deposit

Forex Deposit

Forex Deposit

Most novice traders see the column "Free funds" or "Margin"in their MT 4, 5 trading terminal. Few of them really know what this concept means. And it is very important to understand the value of margin (collateral). In this article, we will consider the concept of Forex collateral, as well as an example of its calculation.
What is Forex collateral?

This concept refers to the amount in conventional units, which acts as a collateral for an open position or several transactions. In MetaTrader, it is displayed as "Margin".
It would seem that there is nothing incomprehensible in the Forex pledge clause. Knowing the amount of funds on the Deposit, as well as the amount of leverage, you can buy a lot in any asset.

However, in practice, professional traders calculate collateral on Forex using a rather complex formula.

In fact, a trader can buy a lot more currency.

But do not think that the formula for calculating collateral on Forex is impossible to understand. After some study, the result will open the veil of how much money is needed for trading.
How to calculate the Deposit on Forex?

To calculate this indicator, you need to know the following data:

The amount of leverage. It is provided by the broker where the trade is conducted. The leverage is always displayed as 1: 200 or 1: 100. “1 “is the Deposit amount;” 2 “is” 200 “or” 100 " is the leverage that the broker gives.
Lot size of the currency in question. The standard lot is equal to 100 thousand units of the base currency. 1 lot of the EUR / USD pair is equal to 100 thousand euros.

Here is the simplified formula for calculating the security Deposit on Forex:

The amount of currency/Leverage = Collateral

For clarity and consolidation of this knowledge, we offer to consider the calculation of the Deposit on the example.

For example, a trader is considering buying one lot of the Euro/us dollar pair. The leverage is 1: 200.

Thus: 10000/200=500 euros.

We will transfer these five hundred euros to the Deposit currency (us dollars). We see that we need 500 x 1.1270 = $563.5 to maintain the transaction.

If the work is carried out with a leverage of 1:500 and you need to buy more than one lot, but only a small part of it, for example, 0.01. Then the Deposit will be calculated as follows:

1000/500 = 2 euros or dollars (2 euros x 1.12 = $2.24).

If you look at it, $2.24 is the minimum amount to work with the EUR / USD pair. If you choose a leverage of 1:1000, then the amount will be halved to $1.12. With such deposits, it is best to work on cent accounts.

We hope that now You will not have any questions about what a Deposit is or how to calculate a Deposit on Forex. You can calculate it for absolutely any asset. To do this, you will need to know the amount of leverage, as well as the Deposit.

Comments (0)