Margin specifies the minimum amount of investment required to open a position in an investment instrument. This amount varies according to the price of the related asset, the leverage ratio and the volume of the transaction.
Margin calculation is done as follows:
Margin = (Related Asset Price * Transaction Volume) / Leverage Ratio
For example, you bought 1 lot at 1.1 level on EUR / USD parity.
In this case, Margin:
[100.000 (1 LOT) * 1.1 (Parity price)] / (leverage) 400 = 275 USD Margin.
The used margin used here is 275 USD. EUR / USD 1.1. This will be the amount blocked by the system to open a 1-lot position at the level of (at 1/400 Leverage).
Assuming that you have invested 10000 USD and only opened the above transaction, the usable margin will be 10000-275 USD, that is 9725 USD.
With the contribution of developing technology, investors had the chance to trade easily in leveraged derivative markets. Leverage, which gives you the opportunity to open a higher position based on your margin, has attracted the attention of all traders, who want to take advantage of the opportunity to trade with higher volumes.
For example, let's assume that the trader, who wants to take advantage of the 1: 400 leverage ratio, has 10.000 USD. With this guarantee, the maximum position value that it can open with a leverage of 1: 400 is 400 * 10,000 USD, that is, 4,000,000 USD.
If we seek the answer to the question of whether the leverage ratios are high and Forex is risky, we will see it is not. For example, when a trader who deposits 100,000 USD in a 1: 1 leverage transaction wants to open a 1 lot (100,000 USD) position on the EUR / USD parity, he must use the entire margin. There is no free guarantee. However, if he had opened an account with 1: 100 leverage; 1000 USD would be margin for transaction, 99000 USD would be free margin. In other words, high leverage, high loss is actually one of the biggest misconceptions in the industry. The profit / loss of 1 lot position at 1: 1 leverage is the same as the profit / loss of the position at 1/100 leverage selection. Leverage does not affect the profits or losses to be more or less, only determines the initial margin However, if the trader continues to open a transaction with high lot rates with a free marginl of the rest 99.000 USD, then leverage may pose a risk to the trader. It will be much more likely that it will continue to open trades with a limited position and make a profit. It should never be forgotten that the amount of money earned is directly proportional to the risk taken. What is important here is that our trader to adjust their risk level with logical steps at their own initiative.