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.

This approach is typically used when trading with a scalping strategy. For example, you first open a trade of 1 lot, using about 30% of your account balance as margin, and then another 0.5 lot. Now the margin is 45% of your deposit. Is it risky? But that's what scalping is all about.

Calculating the amount of collateral on Forex is quite simple.

To do this, you just need to know the forex margin amount your dealing center and then apply this figure to the calculation. Don't confuse the amount of funds required to open a trade with the forex margin; the difference is clearly visible when trading, when opening a trade larger than the available amount.

For example:

We open a 1-lot trade on the EUR/USD currency pair at a rate of 1.2500. To do this, we need 125,000 US dollars.

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

2. We calculate the Forex collateral itself: 12,500 x 30/100 = 3,750 USD. This takes into account that our broker's collateral requirement is 30%. The amount may vary depending on the DC.

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

This technique is often used when adding positions. For example, you opened the first order and see that the trend is confidently moving in your direction, so why lose profit? Following the first order, a second one is opened in the same direction.

It's important to remember, however, that this tactic is only applicable to trading on the shortest timeframes, as otherwise even the slightest trend reversal of just a few points can completely wipe out your deposit.

To quickly calculate the collateral required to open a trade, it is easiest 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 automatically make the calculation based on the current exchange rate.

The Forex margin indicator allows you to always monitor the stability of your trade against trend fluctuations. The lower its value, the more stable your position is and the longer the trade you can open.