Forex is an acronym for foreign exchange. It is the largest financial market in the world where currencies are traded. The forex market operates 24 hours a day, five days a week. Trading in the forex market is done through a broker who provides the trader with a trading platform. Free margin level is an important concept in forex trading. In this article, we will explain what free margin level is in forex and how it is calculated.
Free margin level is the amount of money that is available in a trader’s account for opening new positions. It is the difference between the trader’s equity and the margin used. Equity is the value of the trader’s account, including profits and losses from open positions. Margin is the amount of money required to open a position. Margin is required because forex trading involves leverage. Leverage is the ability to control a large position with a small amount of money. For example, a leverage of 1:100 means that a trader can control a position of $100,000 with a margin of $1,000.
The formula for calculating free margin level is:
Free Margin Level = Equity / Margin * 100%
For example, if a trader has an equity of $10,000 and has used a margin of $2,000 to open a position, the free margin level would be:
Free Margin Level = 10,000 / 2,000 * 100% = 500%
A free margin level of 500% means that the trader has five times the amount of money required to open new positions.
A free margin level of less than 100% means that the trader does not have enough money in their account to open new positions. This is called a margin call. A margin call is a warning from the broker that the trader needs to deposit more money into their account to maintain their open positions. If the trader does not deposit more money, the broker may close the trader’s positions to prevent further losses.
A free margin level of 0% means that the trader’s account has been depleted, and all their positions have been closed. This is called a stop out level. The stop-out level is the level at which the broker will automatically close the trader’s positions to prevent further losses.
In summary, free margin level is an important concept in forex trading. It represents the amount of money that is available for opening new positions. Traders should always monitor their free margin level to avoid a margin call or a stop-out level. It is recommended that traders maintain a free margin level of at least 100% to avoid a margin call. Traders should also use stop-loss orders to limit their losses and protect their account.
