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Trading Scenario: Margin Call Level at 100% and No Separate Stop Out Level

So far you have learned different aspects of margin, trading situation and now we are about to discuss the situation when Margin Call Level is 100% and there is no distinct Stop Out Level.

Let’s check the real-life facts of the situations when trading can go wrong:

Stage 1: Fund Depositing to Trading Account

Trade Account Balance= $1000

Stage 2: Calculation of Required Margin

For long EUR/USED at 1.15000 and to open 10, 000 units 1 mini lot, the required Margin is 2%.

Base Currency= EUR

Mini lot= 10,000 euros=Notional Value

Trading account base currency= USD

So, $1.15 = €1

$11,500 = €10,000 = Notional Value

Required Margin = Notional Value x Margin Requirement

$230 = $11,500 x .02

Margin Requirement =2%, the

So, Required Margin = $230.

Stage 3: Calculation of Used Margin

Used Margin = Required Margin. (only one position is open)

Stage 4: Calculation of Equity

Suppose the price is slightly in favour of the trader and the position is trading at breakeven. So the floating P/L is $0.

So, Equity = Balance + Floating (P/L)

$1,000 = $1,000 + $0

Equity= $1,000.

Stage 5: Calculation of Free Margin

With the Equity, we can calculate the Free Margin:

Free Margin = Equity – Used Margin

$770 = $1,000 – $230

Free Margin= $770.

Stage 6: Calculation of Margin Level

We already know the equity and Used Margin

Margin Level = (Equity / Used Margin) x 100%

435% = ($1,000 / $230) x 100%

Margin Level = 435%.

EUR/USD falls 500 pips and presently trading at 1.10000

This is how your account will be affected:

EUR/USD drops 288 pips again

Required Margin= Notional Value X Margin Required

$214 = $10,712 x .02

( Notional Value = $1.07120 = €1. So, $10,712 = €10,000)

We have explained that previously, the Required Margin was $220.

Floating Loss = $788.

Your Equity = $212.

Used Margin= $214

 

So, Margin Level has reduced to 99%

Margin Level = (Equity / Used Margin) x 100%

99% = ($212 / $214) x 100%

Now it’s below the Margin Call Out

Your trading platform will instantly close your trade!

3 Comments

  1. Manjita on January 26, 2020 at 12:48 AM

    Done.

  2. 11800287 on August 9, 2020 at 12:07 AM

    love it.

  3. 11800287 on August 9, 2020 at 12:07 AM

    Great.

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