There are many terms in foreign exchange trading that are essential for traders to know. As it is known that “margin” is required for currency trading, commodity trading, or any other instrument.

Margin, by definition, is the amount of money required to open a leveraged position. The margin ratio provides traders with information about the power of their leveraged position.

Margin allows traders on mt5 platform to use leverage when trading an instrument. This allows traders to deposit a percentage of the opening value of the trade while still gaining full exposure to the instrument’s size and amount. Basically, more trades can be done with less money, however it increases a trader’s exposure & risk to the fluctuations of the market. For example, if an instrument moves in the opposite direction of the traders favor, traders are responsible for the full value of the leveraged trade’s movement.

For example, if you are trading an instrument that has an Initial Margin of 5%, or a leverage of 1:20, you only need to put aside that margin amount in order to gain full exposure. The benefit of trading with leverage is that you can release 100% of the profits of the trade even though only 5% of the total value was used.  This can also work against traders, because their exposure to risk is also increased.

When opening a position, the funds that are used to open the position are deducted from their ‘Available’ funds known as balance while their ‘Equity’ remains the same.

A simple way to calculate the total available balance is: Equity – Initial Margin.

Traders are welcome to check how margin works by opening a mt5 demo account by using our mt5 download links available via our website or via search engines, Mt5 has been known to be one of the best trading platforms for traders to have a great trading experience.