Despite the fact that Forex brokers agree to the point of traders to buy and sell on currency pairs ten times more than what’s been truly invested and brokers are aware of the fact that traders never loose currency beyond their actual investments. At this moment Margin act as the warranty.
Margin points to that amount at the trading which is actually required by the traders to be kept as balance at the Forex account for dealing with any kind of losses that may take place during trading.
This helps the traders to get prevented from the loosing the money that they don’t have still by taking added leverage they add-on to their losses and margin operates until the trading position is active and allow trading until traders have enough balance amount in their Forex account.
As soon as the balance amount finishes up the margin call announces and points that the trading limit is over and traders should exit the Forex trading platform.
The amount of margin varies from Forex broker to broker as some of them require 0.5% and other require 10% of marginal account depending upon the leverage amount offered by the Forex brokers.
For instance, at the leverage amount of 20:1 a trader requires a 5% of the value of each open trade position in the Forex account for maintaining the balance in the account to make further position with the desired currency pairs. This amount is equal to the $500 on holding a position of each lot of 10,000 units, thus, $10,000*5%=$500 as per the calculation.
Available margin, free margin and usable margin are the synonyms used by the different Forex brokers controlling the allowance for your trading enthusiasm.
The trader cannot open trading positions that surpass the available margin and maintain the previous trade positions operating if usable margin is drained out are equal to zero. Also, if the whole available margin is exhausted then the trader will receive the margin call.
The maintenance, required or used margin are the synonyms that can be used interchangeably that suggest that the funds, which are in use are currently locked in to sustain the currently open trades.
The margin call occur when due to losses trader’s Account Equity balance the total of the floating profit and loss becomes equally important to the used margin value or that can be waved off beyond it.
Thus, it can be concluded that the margin call helps traders to manage their trading accounts without expending unlimited.