Margin level is an important concept in forex trading, as it can determine whether a trader has enough funds in their account to keep their trades open. In simple terms, margin level is the ratio of the trader’s equity to the amount of margin required to maintain open positions. It is expressed as a percentage, and it can fluctuate depending on the trader’s trades and the movement of the market.
TradeKing Ally Forex is one of the popular forex brokers that offers margin trading to its clients. In margin trading, traders can leverage their positions by borrowing funds from their broker. This allows them to increase their potential profits, but it also exposes them to higher risks. Margin level is therefore an important tool for managing these risks.
To understand how margin level works, it is important to first understand the concept of margin. Margin is the amount of money that a trader needs to deposit with their broker in order to open a position. This amount is usually a percentage of the total value of the position, and it is known as the margin requirement. For example, if the margin requirement is 1%, and a trader wants to open a position worth $10,000, they would need to deposit $100 as margin.
The margin requirement is set by the broker and can vary depending on the currency pair, the size of the position, and the trading platform being used. TradeKing Ally Forex offers a margin requirement of 1% for major currency pairs, which means that traders can leverage their positions up to 100:1.
Margin level is calculated by dividing the trader’s equity by the margin requirement. Equity is the sum of the trader’s account balance and any unrealized profits or losses from open positions. For example, if a trader has an account balance of $5,000, and they have an open position with a margin requirement of $500, their equity would be $5,500. Their margin level would therefore be 1,100% ($5,500 divided by $500).
A margin level of 100% means that the trader has used up all their available margin, and any further losses could result in their position being automatically closed by the broker. A margin level below 100% means that the trader has some available margin, but they may need to deposit more funds to maintain their open positions.
TradeKing Ally Forex offers a margin call policy to ensure that traders do not lose more than their available funds. A margin call is triggered when the margin level falls below a certain threshold, usually around 50%. This means that the trader will need to deposit more funds into their account to maintain their open positions, or risk having their positions automatically closed by the broker.
In addition to margin level, traders should also pay attention to their stop loss and take profit levels. Stop loss is a pre-determined level at which the trader’s position will be automatically closed to limit their losses. Take profit is a pre-determined level at which the trader’s position will be automatically closed to take their profits. These levels can help traders manage their risks and avoid losing more than they can afford.
In conclusion, margin level is an important concept in forex trading, as it can determine whether a trader has enough funds in their account to keep their trades open. TradeKing Ally Forex offers a margin requirement of 1% for major currency pairs, and a margin call policy to ensure that traders do not lose more than their available funds. Traders should also pay attention to their stop loss and take profit levels to manage their risks effectively.
