Expert Chaslau Koniukh
  • Biography
  • Analytics
  • Companies and corporations
  • Global investment
  • Investors and Entrepreneurs
  • Market terminology
  • Stock Market
  • World exchanges
free margin

Free margin and leverage: basic concepts on the Forex exchange

17.07.2020
2 min read

Multi-million dollar transactions are made on the stock market every day. But to manage such amounts, private investors do not always have the financial capacity. The solution is Free margin, which allows reducing risks.

What free margin and its calculation are used for

Free margin or margin represents the collateral that must be in the trader’s account to make large transactions. It is a kind of security deposit, which helps to make transactions at a high price. Margin does not serve as a repayment option and can be much less than the loan amount.
All operations on the Forex market take place in two stages:

  • select the best assets to sell or buy.;
  • do business at the best possible price.

Before you start working with a trader, you should get acquainted with the basic concepts. A pip is the smallest unit of sale on the exchange. Its size is formed on the basis of the currency chosen for the operation. The lot concept is used to determine the asset size. Leverage allows a trader to take part in transactions whose value exceeds his capital. It allows performing trading operations, the amount of which is much larger than the funds available to the trader. Due to this, medium and small investors are represented in the Forex market, which offer small lots.
Leverage shows the ratio and comparison of personal capital and funds that were borrowed from the trader.
To make an application at the exchange, contributions must have two indicators – the minimum and maximum size. In case the application is accepted, the broker may change the margin amount. Its amount depends on the leverage.
If the down payment amount is large, it can be reduced with leverage. The larger it is, the smaller the down payment. The second option is to make a lot of transactions. In this case, their amount does not matter, the number of transactions is important.

free margin

When calculating the margin, there are some features that require attention:
For the base currency a quote is accepted, for example USDCHF is US dollar.
The size of the contract. For calculation of 1 lot 100 000 base currency is used. If the lot size is 0.01, then 100000*0.01 is needed, which is 1000.
After the deposit is calculated, its value in the base currency should be converted into the currency used for the deposit. For example, you need to open the initial order, where the leverage is 200, and the lot – URUSD 1.2937, the base currency – Euro. To calculate the margin in this case, you should divide the contract size by the leverage: 100000/200=500. The resulting number is translated at the current rate and this result is a margin.

Share
0
Previous Post Annual report of the Central Bank: state of reserves and forecast for the future Next Post Analyst Chaslau Koniukh: Chinese digital yuan threatens dollar

You Might Also Like

Clearing activity in the market
Market terminology
What is a clearing activity in the market and its advantages
27.07.2020
Diversification of funds
Market terminology
Diversification of funds as a tool for minimizing business risks
06.08.2020
Anti-Martingale
Market terminology
Anti-Martingale strategy and its implementation in the Forex market
22.02.2021
currency intervention
Market terminology
Currency intervention as an instrument for adjusting the national currency rate
05.09.2020
dow jones averages
Market terminology
What is the Dow Jones averages index
17.06.2020
prop trading
Market terminology
What is prop trading?
12.02.2021

Recent Posts

  • 1PNC Financial Services Group
    Financial Corporation PNC Financial Services Group
    24.02.2021
  • 2Evraz plc
    S&P Global Ratings analysts downgraded rating for Evraz plc
    23.02.2021
  • 3Anti-Martingale
    Anti-Martingale strategy and its implementation in the Forex market
    22.02.2021
  • 4oil exports to China
    Oil exports to China increasing: reasons for the growth in volumes
    21.02.2021
  • 5Advertising backpacks
    Advertising backpacks from BackAd startup: unique development
    20.02.2021

Popular Posts

  • How foreign investments are distributed in the world 0
  • Strong economies: development and prospects for Iceland 0
  • What to do when the stock exchanges are falling: analyze the fall of the indexes 0
  • Automobile concern Fiat Chrysler Automobiles: plans to merge with Peugeot Societe Anonyme 0

Social

Editor's Picks

Chaslau Koniukh

American bankers from JPMorgan and Goldman Sachs advise to invest in gold: review by Chaslau Koniukh.

Spokesperson
17.08.2020
Expert Chaslau Koniukh

Chaslau Koniukh on the analysts’ opinion on the key stake size change soon

Spokesperson
18.06.2020
expert Chaslau Koniukh

Chaslau Koniukh: Internet trade market in Russia may reach 2.78 trillion rubles.

Spokesperson
30.05.2020
Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Will the U.S. oil shale industry be able to quickly recover from the crisis: A Review by Chaslau Koniukh

Spokesperson
16.05.2020

Latest Posts

PNC Financial Services Group
Financial Corporation PNC Financial Services Group
24.02.2021
Evraz plc
S&P Global Ratings analysts downgraded rating for Evraz plc
23.02.2021
Anti-Martingale
Anti-Martingale strategy and its implementation in the Forex market
22.02.2021

Chaslau Koniukh

Expert Chaslau Koniukh

Chaslau Koniukh is an international financial expert, a professional investor, an experienced analyst and a practicing trader. He advises European entrepreneurs; holds lectures on investment topics; is the author of scientific articles on work at the stock market.

Recent Posts

  • 1Wendy Deng
    Wendy Deng: How a poor Chinese girl became one of the most powerful women in the world
    25.02.2021
  • 2PNC Financial Services Group
    Financial Corporation PNC Financial Services Group
    24.02.2021
  • 3Evraz plc
    S&P Global Ratings analysts downgraded rating for Evraz plc
    23.02.2021
Expert Chaslau Koniukh
  • Facebook
  • Twitter
  • Youtube
  • Instagram
  • Biography

Expert Chaslau Koniukh: brief biography and path of formation

Let’s Socialize