Balance, Equity, Leverage, Margin, Free Margin, Margin Level, Stop Out Level Explained


Attention: Trading forex and contracts for differences on margin carries a high level of risk, and may not be suitable for all investors.

Balance

Balance shows the amount of money you have deposited into your trading account. The profit and loss of your orders will be added or deducted to/from your trading account balance when you close your orders.

For instance, the screenshot below shows the Balance is 9,449.14 USD.

Equity

Balance and Equity show the same values as long as there is not any open order.

Balance and Equity show the same values as long as there is not any open order.

When you have open orders in your trading account, the Balance will not change and it will stay fixed but the Equity will be floated according to the profit and loss of your current orders.

Equity = Balance + ProfitLoss

Execution commission and charges of swap are considered as profit and loss, where applicable.

Take the first screenshot above as an instance:-

Equity = 9,449.14 + 27.00 – 6.00 – 0.00 = 9,470.14

Leverage

Leverage allows traders to trade the larger amounts of underlying assets through having a smaller trading capital. The leverage is usually described in ratio form e.g.

  • 1:50
  • 1:100
  • 1:500

Attention: Leverage can be a double-edged sword.
It has the ability to amplify your gain and also your loss.

Point your cursor to your account’s name in the Navigator panel and to check the leverage provided.

Margin

Margin is the amount of the money that is used to open a position or trade and it is calculated based on the leverage.

In other words it is the amount of the money that gets locked in an open position as collateral. This money is locked until the position is closed.

Margin = UnderlyingAssetValue / Leverage

Brokers usually take the price of underlying asset into consideration.

UnderlyingAssetValue = Volume × ContractSize × CurrentPrice

Hence, the underlying asset value of 1.00 lot EurUsd when the price of EurUsd is 1.10675 for instance, is:-

UnderlyingAssetValue = 1.00 × 100,000 × 1.10675 = 110,675 USD

However, Most of the instruments offered by TriumphFX is using “Fixed Margin” mode. This makes 1.00 lot requires exactly 100,000 unit account balance currency, regardless of any symbol and price of underlying asset value:-

UnderlyingAssetValue = 1.00 × 100,000 = 100,000 USD

Free Margin

Free margin is the difference of your account equity and margin used for the open positions. When you have no positions then no money from your account is used for margin. Therefore, all the money you have in your account is free. The formula is:

FreeMargin = Equity – Margin

In our example, the free margin of the account:-

FreeMargin = 9,470.14 – 1,000.00 = 8,470.14

Margin Level

Margin level is the ratio of the equity to the margin.

Margin is used to determine whether the traders can take any new positions when they already have some positions. Different account types offered by TriumphFX have different limits for the margin level, but this limit is usually 100%. This limit is called “Margin Call Level“. The formula is:

MarginLevel = (Equity / Margin) × 100

MarginLevel = 9,470.14 / 1,000.00 = 947.01%.

Stop Out Level

The system automatically starts force closing your losing positions when your Margin Level fall below the Stop Out Level. This stop out level is usually 20%.

Usually, it starts closing from the biggest losing position first. Usually, closing one losing position will take the margin level higher than 20%, because it will release the required margin of that position, and so, the total used margin will go lower and therefore the margin level will go higher.

The reason why this limit is setup is that the broker cannot allow you to lose more than the money you have deposited in your account.


External references

https://www.mql5.com/en/blogs/post/718703

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