Oil Leverage Examples and Margin Example and Example

Margin required : It is the amount of money your oil broker requires from you to open a position. It is expressed in percentages.

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

Used margin : amount of money in your account which has already been used up when buying a oil trading contract, this contract is the one that's displayed in open trades. As a trader you can't use this amount of money after opening a trade order transaction because you have already used it & it isn't available to you.

In other words, because your oil broker has opened up a position for you using the capital you have borrowed, you must maintain this usable margin for your trading account as a security to allow you to continue using this oil Leverage Example he has given you.

Free margin : amount in your account that you can use to open new trades. This is the amount of money in your account that has not yet been oil Leverage Examples because you have not yet opened a trade with this money - this is also very important for you as a investor because it enables you to continue holding your open transactions as it will be explained below.

However, if you over use oil Trading Leverage Example, this free margin will drop below a certain percent at which your crude oil broker will have to close all your positions automatically, leaving you with a big loss. The crude oil broker at this point automatically closes all your open trade position because if your trade positions are left open the broker would lose the money you'll have 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 percent of your crude oil account, in fact 2 percent is recommended.

Difference Between Oil Leverage Examples Set by the Broker and Used Oil Leverage Examples

If the set oil Trading Leverage Example is 100: 1, it means that you can borrow up to 100 dollars for every dollar which you have in your oil account but you don't have to borrow all the 100 dollars for every dollar you have, but you can decide to borrow 50:1 or 20:1. In this case even though the leverage option set 100:1 your used oil Leverage Examples will be the 50:1 or 20:1 that you have borrowed to make a trade.

Example:

You have 1000 dollars (Equity)

Set 100:1

Oil Leverage Example Used = Amount used /Equity

If you buy crude oil lots equal to 100,000 dollars that as a trader you will have used

= 100,000/1000

= 100:1

If you buy oil lots equal to 50,000 dollars you'll have used

= 50,000/1000

= 50:1

If you buy oil lots equal to 20,000 dollars you will have used

= 20,000/1000

= 20:1

In these 3 cases you can see that even though the set is 100:1

Used is 100:1, 50:1, 20:1 depending on size of oil lots traded.

So Why not Just Select 10:1 option as the Maximum Oil Trading Leverage Example? Because to keep within the proper risk management rules it is even recommended 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. Oil Trading Leverage Example. When you borrow capital from anyone or a bank you must maintain a security or collateral to acquire a loan, even if the security is based on monthly deduction from your salary, the same thing with Oil Trading.

In oil trading the security is known as margin. This is capital you deposit with your broker.

This is calculated in real time as you trade. To keep your borrowed money you must maintain what is known as the required capital (your deposit).

Now if Your Oil Trading Leverage Example is 100:1

When trading if you have $1,000 & use option 100:1 and buy 1 standard lot for $100,000 your margin on this transaction is $1000 dollars in your account, this is the money that you will lose if your open trade goes against you the other $99,000 that is borrowed, they will close the open oil trades automatically once your $1,000 has been taken by the oil market.

But this is if your oil broker has set 0% Crude Oil Margin Requirement before closing your crude oil trades automatically.

For 20% requirement before closing your crude oil trades automatically, then your trades will be closed once your account trading balance gets to $200

For 50% requirement of this level before closing your crude oil trades automatically, then your trades will be closed once your account trading balance gets to $500

If they set 100% requirement of this level before closing your open trade positions automatically, then your trade will be closed once your account trading balance gets to $1,000: Explanation the trade will close-out as soon as you execute it because even if you were to pay 1 pip spread your account balance will get to $990 and needed percentage is 100% i.e. 1,000 dollars, therefore your orders will immediately get closed.

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 brokers who set it at 20% are some of the best because the likely hood they close-out your trade is reduced as shown in example above.

To know about this level which is calculated by your platform automatically - The MT4 Oil Platform will display this as "Crude Oil Margin Requirement", This will be displayed as a percentage the higher the percent the less likely your trades are to get closed.

For Example if

Using 100:1

If oil Trading Leverage Example is 100:1 and you transact oil lots equal to $10,000

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

Calculation:

= Capital Used * Percent(100)

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

Crude Oil Trading Margin Requirement = 1,000 %

Investor has 980% above required amount

Using 10:1

If oil Trading Leverage Example is 10:1 and you transact oil lots equal to $10,000

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

Calculation:

= Capital Used * Percent(100)

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

Crude Oil Margin Requirement = 100 %

Investor has 80% above required amount

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

These Areas are Shown on The Software Screen-Shot Below as an Examples:

MT4 Oil Software