How Does Used Margin Work?

What is meant by "Used Margin"? We must first comprehend Required Margin in order to comprehend what Used Margin is.

August 01, 2022 - 04:01 PM 258 views

How Does Used Margin Work

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What is meant by "Used Margin"?

We must first comprehend Required Margin in order to comprehend what Used Margin is.

You must set aside a certain amount of Required Margin each time you open a new position.

Required Margin was discussed in detail in the previous lesson, so if you don’t know what it is, please read our  -

What is Margin? Lesson first.

If you open multiple positions at once, each one will have a different Required Margin.

The entire amount, referred to as the Used Margin, is the sum of all the Required Margin for all open positions.

All of the margin that is "locked up" and cannot be used to initiate new positions is referred to as Used Margin.

The margin here has already been "utilised." Therefore, the term "Used Margin"

Used Margin is the sum of money you had to deposit to keep ALL of your trades open, as opposed to Required Margin, which is connected to a SPECIFIC deal.

Open long positions in the USD/JPY and USD/CHF, for instance.

If you have $1,000 in your account and wish to open TWO positions, for example:

I wish to start a trade long in USD/JPY worth 1 mini lot (10,000 units).

I want to start a position long in USD/CHF for 1 mini lot (10,000 units).

Each currency pair's margin requirement is as follows:

Currency Pair

Margin Requirement

USD/JPY

4%

USD/CHF

3%

How much "Required Margin" will be required for each slot before you may open it?

As both currency pairings' base currency is the USD. Each position's notional value is $10,000 because a micro lot costs $10,000.

The Required Margin for EACH slot shall now be determined.

USD/JPY Position

The USD/JPY pair has a 4% margin requirement. The Required Margin for your trading account will be $400 if it is USD-denominated.

Required Margin = Notional Value x Margin Requirement

$400 = $10,000 x 0.04

USD/CHF Position

The USD/CHF exchange rate has a 3% margin requirement.

The Required Margin for your trading account will be $300 if it is USD-denominated.

Required Margin = Notional Value x Margin Requirement

$300 = $10,000 x 0.03

Given that you made TWO deals, your trading account's used margin will be $700.

Used Margin = Sum of Required Margin from ALL open positions

$700 = $400 (USD/JPY) + $300 (USD/CHF)

Here is a neat illustration showing the connections between Balance, Required Margin, and Used Margin.

We learned the following in this lesson:

The total margin that is now being used to sustain all open positions is known as used margin.

To put it another way, the SUM of all Required Margin is being used.

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