What is margin trading Flashcards
A margin trading account displays the following metrics?
Balance, Used Margin, Free Margin, Unrealized P/L, Equity, Margin Level
The procedure of moving open positions from one trading day to another is called?
rollover
A swap is a FEE that is either paid or charged to you at the end of each trading day if?
you keep your trade open overnight.
Unrealized P/L refers to?
the profit or loss held in your current open positions…your currently active trades.
Unrealized P/L is also known as “Floating P/L” because the value is?
constantly changing since your positions are still open.
A Realized Profit is profit that comes from a?
completed trade.
Margin is simply a?
portion of your funds that your forex broker sets aside from your account balance to keep your trade open and to ensure that you can cover the potential loss of the trade.
Margin is expressed as a?
(%) of the “full position size”, also known as the “Notional Value” of the position you wish to open.
You may see margin requirements such as 0.25%, 0.5%, 1%, 2%, 5%, 10% or higher. This percentage (%) is known as the?
Margin Requirement.
When margin is expressed as a specific amount of your account’s currency, this amount is known as the?
Required Margin.
When trading with margin, the amount of margin (“Required Margin”) needed to hold open a position is calculated as a?
percentage (“Margin Requirement”) of the position size (“Notional Value”).
The specific amount of Required Margin is calculated according to the?
base currency of the currency pair traded.
If the base currency is the SAME as your account’s currency:?
Required Margin = Notional Value x Margin Requirement>
If the base currency is DIFFERENT from your account’s currency:?
Required Margin = Notional Value x Margin Requirement
x Exchange Rate Between Base Currency and Account Currency.
Used Margin is all the margin that’s?
locked up” and can’t be used to open new positions.
Used Margin =?
Sum of Required Margin from ALL open positions
$700 = $400 (USD/JPY) + $300 (USD/CHF)
The account equity or simply “Equity” represents the?
current value of your trading account.
Equity =?
Account Balance + Floating Profits (or Losses)
Used Margin, which is just the aggregate of ?
all the Required Margin from all open positions..
Free Margin is the?
difference between Equity and Used Margin.
Free Margin can be thought of as two things:?
- The amount available to open NEW positions.
2. The amount that EXISTING positions can move against you before you receive a Margin Call or Stop Out.
Used Margin + Free Margin =?
Equity.
The Margin Level is the?
percentage (%) value based on the amount of Equity versus Used Margin.
How to calculate Margin Level?
Margin Level = (Equity / Used Margin) x 100%
Ex: Margin Level = (Equity / Used Margin) x 100%
250% = ($1,000 / $400) x 100%
In Forex trading, the Margin Call Level is when the?
Margin Level has reached a specific level or threshold.
A Margin Call occurs when?
your floating losses are greater than your Used Margin.
In Forex trading, a Stop Out Level is when?
your Margin Level falls to a specific percentage (%) level in which one or all of your open positions are closed automatically (“liquidated”) by your broker.
More specifically, the Stop Out Level is when?
the Equity is lower than a specific percentage of your Used Margin.
This act of closing your positions is called?
a Stop Out.
The Stop Out Level is also known as?
the Margin Closeout Value, Liquidation Margin, or Minimum Required Margin.
