Margin level in the trader’s trading platform, its optimal size
The margin level is an extremely important indicator that characterizes the level of risk for open transactions in a trader's trading platform.
It is this that warns that a margin call or stop out may soon be triggered, protecting the broker's funds and forcibly closing the position.
The margin level can also serve as a guideline when opening new trades, allowing the trader to determine whether there are sufficient funds to open a new trade.
How is margin calculated in the MetaTrader trading platform?
This indicator is calculated automatically in modern trading platforms. However, this only occurs after the first order is opened.
But if you want to make the calculation manually, then the following formula is used for this:
Margin Level = (Equity/Margin) x 100%
Where “Funds” is the account balance taking into account the result (+ or -) of open transactions, and “Margin” is the funds under collateral.
If we substitute the data from our figure into the formula, we will get the following calculation:
Margin Level = (Equity/Margin) x 100% = (10095.88 / 200) x 100% = 5047.94%
The question immediately arises: is it possible to calculate the free margin before opening an order, in order to immediately determine the level of risk?
It's easy to do: just switch to a demo account and open an order there, with the same parameters as you plan to use on a real account.
It's also recommended to pay attention to another interesting indicator: "Free Margin." Its value allows you to assess whether you can open new orders. If the free margin is 0, it means you have no funds left to use as collateral for new trades.
What should the margin level be?
If the margin level indirectly characterizes the risk of open transactions, then what is the optimal size of this indicator?
It is clear that the higher the margin percentage, the better.
Many experts recommend not to go below 100%, this is due to the fact that most brokers resort to forced position closure when the stop-out 10-30% of the margin level:
But I would advise not to go below 500%, since if the trend speed increases, the price can very quickly reach unfavorable values.
It all depends on the strategy you use in your trading. When scalping, the margin level can be below 500%, but for long-term trading, it is advisable to stick to even higher levels.
How to increase margin level?
If you notice that your margin level is approaching a critical point, you should take steps to increase it. There are two ways to do this:
Increase your account balance – that is, simply deposit an additional amount of funds, thereby increasing the balance.
Close an order – if you have multiple orders, you can close the most unprofitable positions. If you only have one position, you can close it partially. This is described in the article: https://time-forex.com/sovet/chastich-zakrytie-poziciy
But it is better not to allow a critical fall, but to plan transactions with a reserve of funds.
What is margin in stock trading? - https://time-forex.com/terminy/margin-forex
