How to Calculate 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 DIFFERENT from your trading account’s currency, the Required Margin is then converted to your account denomination.

Here is the formula to calculate the Required Margin:

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

The only reason for having funds in your account is to make sure you have enough margin to use for trading.

When it comes to trading forex, your ability to open trades is not necessarily based on the funds in your account balance. More accurately, it’s based on the amount of margin you have.This means that your broker is always looking to see if you have enough margin in your account, which can actually differ from your account balance.

If this sounds confusing, don’t you worry.  It’ll start to make more sense as we proceed.

Recap

In this lesson, we learned about the following:

• Margin Requirement is the amount of margin required to open a position. It is expressed as a percentage (%) of the “full position” size or “Notional Value” of the position you wish to open.
• Required Margin is the amount of money that is set aside and “locked up” when you open a position.

In previous lessons, we learned:

• What is Margin Trading? Learn why it’s important to understand how your margin account works.
• What is Balance? Your account balance is the cash you have available in your trading account.
• What is Unrealized and Realized P/L? Know how profit or losses affect your account balance.

Let’s move on and learn about the concept of Used Margin.