Free margin and its implementation in trading
When working with a broker, it is important to use a tool such as free margin. By understanding what its level should be maintained, you can avoid many difficulties, including deposit withdrawals. You should consider the value of the free margin before trading.
To learn more about the benefits of the instrument, you should read more about other factors that should be used in trading. These include balance. This value assumes a certain amount of money available on the deposit. For example, if a trade is not completed, but a broker has deposited $100, his balance will be $100. If the transaction was carried out and the trader made a profit of 5 dollars, the balance is already 105 dollars. In case one or more positions are opened, then this instrument is no longer relevant, but the instrument “Funds” or Equity becomes important. It reflects what the balance will be like if all current trades are closed. The difference between funds and the current balance shows the profitability or loss of open positions.
When trading, the figures in the “Funds” tab are constantly changing, due to the peculiarities of the market conditions, which fluctuate. For example, with this balance and a profit of 5 dollars, the value of funds will be 105 dollars. But in a few seconds this value may increase or decrease – everything depends on the quotes for open trades.
Understanding the two main instruments, it will be easier to understand the concept of margin. There are different meanings in business and trading. In the first case, the margin shows the sum of the difference between the price of goods and their cost. When trading on an exchange, it will have a different meaning.
Most operations in trading are carried out with the help of leverage, which allows to increase profitability. This tool represents credit funds, which are given by the broker in case if the trader does not have the necessary amount for the transaction. Leverage will be the number of borrowed dollars in relation to the amount available in the account. In most cases, this figure is 1:100, but other options apply – 1 to 50 or even 1 to 2000. Margin, in turn, means the collateral that is given to the broker to provide leverage. To calculate this index in a particular transaction its amount is divided by the size of the leverage.
In turn, the free margin informs about the available amount in the account, which can be used as a margin to open new positions. With this indicator, the trader will know how many deals he can make in the near future.