Stock Indices Leverage Example and Margin Trading Examples & Example

Margin required : It's the amount of money your broker requires from you to open a trade transaction. It's expressed in %s.

Equity : It's the total amount of capital you have in your trading account.

Used margin : amount of money in your trading account which has already been used up when buying a stock indices contract, this contract is the one that is displayed in the open trades. As a trader you can not use this amount of money after opening a trade because you've already used it and it's not available to you.

In other terms, because your 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 so as to allow you to continue using this Leverage Examples he has given you.

Free margin : sum in your trading account that you can use to execute new trades. This is the sum of money in your trading account that has not yet been stock indices trading Leverage Exampled because you've not yet opened a trade using this money - this money is also very important for you as a trader because it enables you to continue holding your open trade transactions as described below.

However, if you over use stock indices trading Leverage Example, this free margin will drop below a certain percentage at which your broker will have to liquidate all of your trades automatically, leaving you with a large loss. Stock 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 have a lot of free trading margin. To do this never trade more than 5 percentage of your account, in fact 2 percentage is recommended.

Difference Between Leverage Example Set by the Broker and Used Stock Indices Leverage Example

If the set stock indices trading Leverage Example is 100: 1, what this means is thatthat-as-a-trader you can borrow up to $100 for every one dollar you which have in your trading account, but you don't have to borrow all the $100 for each one dollar you have, you can decide you want to borrow 50:1 or 20:1. In this case though the leverage option is preset at 100:1 your used Leverage Examples will be 50:1 or 20:1 that you've borrowed to make a trade transaction.

Example:

You have $1000 (Equity)

Set 100:1

Stock Indices Leverage Example Used = Amount used /Equity

If you buy stock indices trading lots equal to 100,000 dollars that you will have used

= 100,000/1000

= 100:1

If you buy stock index lots equal to 50,000 dollars you will have used

= 50,000/1000

= 50:1

If you buy stock indices lots equal to 20,000 dollars you'll have used

= 20,000/1000

= 20:1

In these 3 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 stock indices lots traded.

So Why not Just Select 10:1 option as the Maximum Stock Indices Leverage Example? Because to keep within the suitable risk management guidelines it is even recommended that traders use less than this?

This question may seem straight forward but it is not, because when you trade you use borrowed money known A.K.A. Stock Indices Leverage Example. When you borrow capital from anyone or from a bank you must keep a security or collateral to acquire a loan, even if the collateral is based on monthly deductions from your own salary, the same thing with Stock Indices.

In stock indices the security is known as margin. This is the capital that you deposit with your broker.

This is calculated in realtime as you trade. To keep your borrowed money you must keep what is known-asreferred-to-as the required trading capital (your deposit).

Now if Your Leverage Example is 100:1

When trading, if you have $1,000 and use leverage option 100:1 and buy 1 standard lot for $100,000 then your margin on this trade position is the $1000 dollars in your account, this is the money that you'll lose if your open trade transaction moves against you, the other amount $99,000 that's borrowed, they will close the open stock trade transactions automatically once your $1,000 has been taken by the trading market.

But this is if your broker has set 0 % Stock Index Margin Requirement before closing your stock index trades automatically.

For 20% requirement before liquidating your stock index trades automatically, then your trades will be closed once your trading balance gets to $200

For 50 % requirement of this level before liquidating your stock index trades automatically, then your trades will be closed once your trading 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 trading account balance gets to $1,000: Explanation the trade transaction will close-out as soon as you execute it because even if you pay 1 pip spread your trading account balance will drop 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 percent margin requirements, in fact, those brokers that set their margin requirement at 20% are some of the best because the likely-hood they liquidate-out your trade transaction is reduced as shown in example above.

To know about this level which is calculated by your trading software automatically - the MetaTrader 4 Stock Indices Platform will illustrate this as "Stock Index Margin Requirement", This will be displayed as a percent the higher the percentage the less likely your trades are to get liquidated.

For Example if

Using 100:1

If stock indices trading Leverage Example is 100:1 and you transact stock indices lots equal to $10,000

$10,000 dollars divide by 100:1, your used trading capital is $100

Calculation:

= Capital Used * Percentage(100)

= $1,000/$100 * Percentage(100)

Stock Index Margin Requirement = 1,000 %

Investor has 980 percent above the required amount

Using 10:1

If stock indices trading Leverage Example is 10:1 & you trade stock indices lots equal to $10,000

$10,000 dollars divide by 10:1, your used capital is $1000

Calculation:

= Capital Used * Percentage(100)

= $1,000/$1000 * Percentage(100)

Stock Index Margin Requirement = 100 %

Investor has 80 % above the required amount

Because when one has a higher stock indices trading Leverage Example means that they have more percentage above what is required(A.K.A. More "Free Stock Index Margin") their open stock indices transactions are less likely to get closed. This is the reason why traders will choose the option 100:1 for their account but according to their risk management rules, these traders won't trade above 5:1.

These Zones are Shown on the Software Image Below as an Example:

MT4 Stock Indices Platform