Forex Trading Terms Related to Money Management
Margin is a common forex trading term. It refers to the amount of funds required in your forex trading account to open a position with little money. For example, if you want to open a $300,000 position, $3000 of funds on deposit is required for a 1% margin.
Margin is another term for leverage. It is a beneficial tool if used properly as it enables you to open positions of a much greater value compared with the actual funds in your trading account.
Listed below are some common forex trading terms related to margin:
Margin Required
‘Margin required’ refers to the amount of money needed in your forex trading account to open a position with your forex broker. It’s more commonly referred to as ‘margin’.
Margin Account
A margin account is a trading account offered by many forex brokers. This account enables investors to borrow funds from the broker. When you find a suitable broker that meets with your requirements, you can then set up a margin account. This type of account can be compared with taking out a short-term loan.
Margin Call
When the amount of money in your forex trading account cannot cover your possible losses, then you will receive a margin call from your forex broker. In this case some or even all of your open positions will be closed by your broker at the current market price.
Used Margin
Used margin is the amount of money that you broker essentially locks up to keep your current positions open. Although the money is yours, you are not able to touch it until your forex broker gives it back to you, either when you close your current open positions or receive a margin call.
Usable Margin
This is the amount of money you have in your forex trading account to open a new position or guard against losses with your current position. Usable margin is a form of trading collateral against any losses, so if your margin reaches zero you will receive a margin call.
