How The "Leverage-Game" Works

Leverage  and Margin

Margin is defined as the amount of money that is needed as “deposit" to open a position with your forex broker. It is used by your forex broker to maintain your open position. What your forex broker basically does is that takes the margin deposit and lump them with everyone else's margin deposits. It then uses this accumulated “margin deposit" to make transactions within the interbank network.

Margin is often expressed as a percentage value of the full amount of the position. For instance, most forex brokers say they require 2%, 1%, .5% or .25% margin. Based on the margin required by your broker, you can calculate the maximum leverage you can wield with your trading account. Here are the other popular leverage ranges that most forex brokers offer:

Margin Required	Maximum Leverage
5.00%	20:1
3.00%	33:1
2.00%	50:1
1.00%	100:1
0.50%	200:1
0.25%	400:1
0.20%	500 : 1
0.10%	1000 : 1

In addition to "margin required", you will probably see other "margin" terms in your trading platform. These margin terms refer to different aspects of the trading account and they are defined as follow:

Margin required: It is expressed in percentages and is referring to the amount of money your forex broker requires from you to open a position.

Account margin: This is the total amount of money you have in your trading account.

Used margin: This refers to the amount of money that your forex broker has set aside to keep your current positions open. Although the money is still considered yours, you will not be able to use it until your forex broker returns it back to you either when you close your current positions or when you receive a margin call.

Usable margin: This is the money in your account that is available to open new positions.

Margin call: If your open losing positions decreases beyond the usable margin levels set for your account, a margin call will take place and some or all open positions will be closed by the broker at the market price.

The margin is actually used by the forex broker as collateral to cover any losses that you may incur during trading. In actual fact, nothing is being bought or sold for physical delivery to you. The real purpose for having the funds in your account is for sufficient margin.

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