XAUUSD Leverage Example and Margin Example and Examples
Margin required : It is the amount of money your xauusd broker requires from you to open a trade transaction. It is expressed in percentages.
Equity : It's the total amount of capital you have in your trading account.
Used margin : amount of money in your account which has already been used up when buying a xauusd contract, this contract is the one that is displayed in open positions. As a trader you can't use this amount of money after opening a trade because you've already used it & it's not available to you.
In other terms, because your xauusd broker has opened up a trade transaction for you using the trading capital you've borrowed, you must keep this usable margin for your trading account as a security to allow you to continue using this xauusd Leverage Examples he has given you.
Free margin : amount in your account that you can use to execute new trades. This is the amount of money in your trading account that has not yet been xauusd trading Leverage Examples because you've not yet opened a trade using this money - this money is also very important for you as a investor because it enables you to continue holding your open trades as described below.
However, if you over use xauusd trading Leverage Example, this free margin will drop below a certain percentage at which your xauusd broker will have to liquidate all of your trades automatically, leaving you with a large loss. Xauusd broker at this point liquidates all your position because if your trades were to be left open they would lose the money that you've borrowed from them.
This is why you should always make sure you've a lot of free margin. To do this never trade more than 5 percentage of your gold account, in fact 2 percent is adviced.
Difference Between XAUUSD Leverage Example Set by the Broker and Used XAUUSD Leverage Example
If the set xauusd trading Leverage Example is 100: 1, what it means is thatthat-as-a-trader you can borrow upto 100 dollars for every 1 dollar you have in your account, but you do not have to borrow all the 100 dollars for every one dollar that you have, you can choose that you want to borrow 50:1 or 20:1. In this instance though leverage ratio is set at 100:1 your used xauusd Leverage Example will be the 50:1 or 20:1 that you have borrowed to make a trade position.
Example:
You have 1000 dollars (Equity)
Set 100:1
XAUUSD Leverage Example Used = Amount used /Equity
If you buy xauusd trading lots equal to 100,000 dollars that you'll have used
= 100,000/1000
= 100:1
If you buy gold lots equal to 50,000 dollars you'll have used
= 50,000/1000
= 50:1
If you buy gold lots equal to 20,000 dollars you'll have used
= 20,000/1000
= 20:1
In these three cases you can see that allthough the set is 100:1
The used is 100:1, 50:1, 20:1 depending on the size of xauusd lots traded.
So Why not Just Choose 10:1 option as the Maximum XAUUSD Leverage Example? Because to keep within the suitable money management rules it is even adviced that traders use less than this?
This question might seem straight forward but it's not, because when you trade you use borrowed money known A.K.A. XAUUSD Leverage Example. When you borrow trading capital from anyone or a bank you must maintain a security or collateral to get a loan, even if the security is based on monthly deduction from your own salary, the same thing with XAUUSD.
In xauusd the security is known as margin. This is capital you deposit with your broker.
This is calculated in realtime as you trade. To keep your borrowed money you must maintain what is known as required capital (your deposit).
Now if Your XAUUSD Leverage Example is 100:1
When trading if you have $1,000 & use trading leverage ratio 100:1 & buy 1 standard contract for $100,000 your margin on this transaction is $1000 dollars in your account, this is money which you'll lose if your open trade position goes against you the other $99,000 that is borrowed, they will close the open xauusd trade transactions automatically once your $1,000 has been taken by the gold trading market.
But this is if your xauusd broker has set 0% XAUUSD Margin Requirement before liquidating your gold trades automatically.
For 20% requirement before liquidating your gold trades automatically, then your trades will be closed once your account balance gets to $200
For 50% requirement of this level before liquidating your gold trades automatically, then your trades will be closed once your account balance gets to $500
If they set 100% requirement of this level before closing your open positions automatically, then your trade position will be liquidated once your balance gets to $1,000: Explanation the trade will close-out as soon as you execute it because even if you pay 1 pips spread your account balance will get to $990 and the needed percent is 100 percent i.e. 1,000 dollars, therefore your orders will immediately get liquidated.
Most brokers don't set 100% requirement, but there are those who set 100% aren't suitable for you at all, select those set 50% or 20% margin requirements, in fact, those gold brokers that set their margin requirement at 20% are some of the best since due to the likely-hood they liquidate-out your trade transaction is reduced as shown in examples above.
To know about this level which is calculated by your trading software automatically - the MetaTrader 4 XAUUSD Platform will display this as "XAUUSD Margin Requirement", This will be displayed as a percentage the higher the percent the less likely your trades are to get liquidated.
For Example if
Using 100:1
If xauusd trading Leverage Example is 100:1 and you transact xauusd lots equal to $10,000
$10,000 dollars divide by 100:1, used capital is $100
Calculation:
= Capital Used * Percentage(100)
= $1,000/$100 * Percentage(100)
XAUUSD Margin Requirement = 1,000 %
InvestorTrader has 980% above the requirement amount
Using 10:1
If xauusd trading Leverage Example is 10:1 & you trade xauusd lots equal to $10,000
$10,000 dollars divide by 10:1, used capital is $1000
Calculation:
= Capital Used * Percentage(100)
= $1,000/$1000 * Percent(100)
XAUUSD Margin Requirement = 100 %
Investor has 80% above the required sum
Because when one has a higher xauusd trading Leverage Example means that they have more percentage above what is required(A.K.A. More "Free XAUUSD Margin") their open xauusd transactions are less likely to get closed. This is the reason why investors will choose option 100:1 for their account but according to their risk management rules, these investors won't trade above 5:1.
These Zones are Shown on the Software Image Below as an Example:
MT4 XAUUSD Platform