A margin can be said to be the necessary amount needed in a deposit in order to buy a currency on credit. It can also be said to be a good faith deposit that a broker puts up as collateral to be able to keep open a position which is in terms of credit in their account. Simply put, margin is collateral or the minimum amount that is maintained to keep a position open.
In trading, it is important for a trader to maintain a certain level of funds in his account which is the necessary margin to be able to leverage a position that is larger than the actual amount he already put down.
THE ONLINE MARGIN CALCULATOR
As a result of the need to be able to understand margin levels for a particular transaction or trade, the margin calculator was born. The margin calculator is an important tool which calculates the margin that should be maintained in one’s account as insurance for opening any position. The calculator helps in the proper management of trades, and determines the right position size and the leverage level that should not be surpassed.
Using the margin calculator is also easy. Just by opening the calculator, selecting your account currency, the chosen currency pair to trade with, adding the margin ratio chosen for your account and setting the position size, the margin automatically calculates and displays on the screen.
BENEFITS OF USING THE MARGIN CALCULATOR
When trading, there is a certain level of funds that should be maintained in an account. So the need to calculate and understand the necessary and required margin beforehand allows the trader to apply good risk management while avoiding irrelevant margin calls that may result in the closure of a position due to low margin.
By using the margin calculator, one can determine when to reduce the lot size he/she is trading with or the leverage in order to avoid over extension of his trading account balance. The trader also understands the exact margin needed to guarantee a position that he/she wants to open.
Also, the online forex margin calculator can be accessible from anywhere due to technical advancement making it easy for one to understand and have his/her margin levels within grasp in case of an opportunity to trade presenting itself.
The online forex margin calculator is at each and every trader’s fingertips and can be used in every day to day transaction to help in trade activities. But the major setback is that the margin calculator does not work with all accounts. Its results are based on the specifications of the forex time (FXTM) standard account and as such the margin calculator is applicable for this type of account alone. Asides this, it is advisable for traders to use the calculator without limitations strictly as a helper but not to be totally trusted as nothing is totally error free.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.