Determination and calculation of forex collateral

Forex Margin is the amount of funds that the brokerage firm freezes when opening an order; it is usually written as “Funds on Collateral” in your trader’s trading terminal.

This implies that this amount is used to secure the transaction; you cannot use it in trading or withdraw it from the dealing desk.

The peculiarity of using this moment is that even if you open a transaction of the maximum available volume relative to the amount of your deposit, you will still have free funds.

For which one or more transactions can be opened will all depend on the remaining amount.

Typically, this approach is used when trading using a scalping strategy, for example, first you open a trade in the volume of 1 lot, while you use about 30% of the amount in your account as collateral, and then another 0.5 lot. Now 45% of your deposit is already pledged, is it risky? But that’s what scalping is for.

Calculating the amount of collateral in Forex is quite simple.

To do this, you only need to know what size of Forex collateral your dealing center , and then apply this indicator when calculating. At the same time, you should not confuse such two concepts as the amount of funds required to open a transaction and the Forex deposit; the difference is clearly noticeable when trading, when you open a transaction of a larger volume than is available.

For example:

We open a deal of 1 lot on the euro/dollar currency pair at an exchange rate of 1.2500, for this we need 125,000 US dollars.

1. Calculate the amount to open a transaction taking into account the leverage of 1:100 – 125,000/100 = 12,500 US dollars.

2. We calculate the Forex deposit itself – 12,500x30/100 = 3,750 US dollars. This takes into account the fact that our broker has a collateral requirement of 30%. The amount may vary depending on the DC.

As a result of calculations, we see that we can still open a trade with a volume of 0.5 lots, thereby increasing our profit by 50%.

Often a similar technique is used when adding positions, for example, you opened the first order and know that the trend is confidently going in your direction, so why lose profit, after the first order a second one is opened in the same direction.

However, it should be taken into account that such tactics are applicable only to trading on the shortest time periods, since otherwise even the slightest trend rollback of just a few points can completely drain your deposit.

In order to quickly calculate the collateral required to open a transaction, the easiest way is to use a calculator - http://time-forex.com/kalkulytor-treydera

In this case, you should specify the currency pair, the volume of the planned transaction and the account currency, and the script will independently make the calculation based on the current exchange rate.

The indicator characterizing the Forex margin allows you to always control the stability of your transaction to trend fluctuations; the lower its value, the more stable your position is and the longer the transaction you can open.