What is margin trading

Question 1

A margin trading account displays the following metrics?

Answer 1

Balance, Used Margin, Free Margin, Unrealized P/L, Equity, Margin Level

Question 2

The procedure of moving open positions from one trading day to another is called?

Answer 2

rollover

Question 3

A swap is a FEE that is either paid or charged to you at the end of each trading day if?

Answer 3

you keep your trade open overnight.

Question 4

Unrealized P/L refers to?

Answer 4

the profit or loss held in your current open positions…your currently active trades.

Question 5

Unrealized P/L is also known as “Floating P/L” because the value is?

Answer 5

constantly changing since your positions are still open.

Question 6

A Realized Profit is profit that comes from a?

Answer 6

completed trade.

Question 7

Margin is simply a?

Answer 7

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.

Question 8

Margin is expressed as a?

Answer 8

(%) of the “full position size”, also known as the “Notional Value” of the position you wish to open.

Question 9

You may see margin requirements such as 0.25%, 0.5%, 1%, 2%, 5%, 10% or higher. This percentage (%) is known as the?

Answer 9

Margin Requirement.

Question 10

When margin is expressed as a specific amount of your account’s currency, this amount is known as the?

Answer 10

Required Margin.

Question 11

When trading with margin, the amount of margin (“Required Margin”) needed to hold open a position is calculated as a?

Answer 11

percentage (“Margin Requirement”) of the position size (“Notional Value”).

Question 12

The specific amount of Required Margin is calculated according to the?

Answer 12

base currency of the currency pair traded.

Question 13

If the base currency is the SAME as your account’s currency:?

Answer 13

Required Margin = Notional Value x Margin Requirement>

Question 14

If the base currency is DIFFERENT from your account’s currency:?

Answer 14

Required Margin = Notional Value x Margin Requirement

x Exchange Rate Between Base Currency and Account Currency.

Question 15

Used Margin is all the margin that’s?

Answer 15

locked up” and can’t be used to open new positions.

Question 16

Used Margin =?

Answer 16

Sum of Required Margin from ALL open positions

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

Question 17

The account equity or simply “Equity” represents the?

Answer 17

current value of your trading account.

Question 18

Equity =?

Answer 18

Account Balance + Floating Profits (or Losses)

Question 19

Used Margin, which is just the aggregate of ?

Answer 19

all the Required Margin from all open positions..

Question 20

Free Margin is the?

Answer 20

difference between Equity and Used Margin.

Question 21

Free Margin can be thought of as two things:?

Answer 21

1. 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.

Question 22

Used Margin + Free Margin =?

Answer 22

Equity.

Question 23

The Margin Level is the?

Answer 23

percentage (%) value based on the amount of Equity versus Used Margin.

Question 24

How to calculate Margin Level?

Answer 24

Margin Level = (Equity / Used Margin) x 100%
Ex: Margin Level = (Equity / Used Margin) x 100%
250% = ($1,000 / $400) x 100%

Question 25

In Forex trading, the Margin Call Level is when the?

Answer 25

Margin Level has reached a specific level or threshold.

Question 26

A Margin Call occurs when?

Answer 26

your floating losses are greater than your Used Margin.

Question 27

In Forex trading, a Stop Out Level is when?

Answer 27

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.

Question 28

More specifically, the Stop Out Level is when?

Answer 28

the Equity is lower than a specific percentage of your Used Margin.

Question 29

This act of closing your positions is called?

Answer 29

a Stop Out.

Question 30

The Stop Out Level is also known as?

Answer 30

the Margin Closeout Value, Liquidation Margin, or Minimum Required Margin.