What does “Used Margin” mean?

I

f you have skipped the previous lesson, you won’t understand this one. So, please go back and read if you missed it.

Let’s recall what is Required Margin, so we can continue to the Used Margin. 

The position you open at a time has its own Required Margin ( a specific amount that is locked up). Each new position that you have opened next, has its own Required Margin. 

Now, add up all of the Required Margin of all the positions that are open in your trading account and the total amount will be your Used Margin.

Used Margin is ALL the margin that’s blocked for the orders that are yet to be executed. It CAN’T be used to open new positions.

Model 1: You open a long AUD/USD and GBP/USD position

You have a deposit of $1,000 in your account and want to open TWO positions:

Long AUD/USD and want to open 1 mini lot (10,000 units) position.

Long GBP/USD and want to open 1 mini lot (10,000 units) position.

Calculate the Margin Requirement for each currency pair:

AUD/USD 5%

GBP/USD 2%

In our example USD is the base currency for both currency pairs, so a mini lot is 10,000 dollars, which means EACH position’s notional value is $10,000.

AUD/USD Position

$500 = $10,000 x 0.05

The Required Margin will be $500.

GBP/USD Position

The Margin Requirement for USD/GBP is 2%.

$200 = $10,000 x 0.02 

the Required Margin will be $200.

Now, what will be the amount of the Used Margin?

You have TWO trades!

Used Margin = Sum of Required Margin from ALL open positions

$700 = $500 (AUD/USD) + $200 (GBP/USD) 

The Used Margin in your trading account will be $700.

Whenever you square off your positions, the used margin will be credited back to the Available margin. This is the amount available for you to take further positions.

Look at the diagram below to see how Used Margin relates to Required Margin and Balance.

That was easy peasy, lemon squeezy right! 

”All the math you need for trading you get in the fourth grade” – Peter Lynch

Next to the Free Margin! Sounds cooler! 

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