Commodity Trading Leverage Examples and Margin Examples and Examples

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

Equity : It is the total amount of capital you've in your account.

Used margin : amount of money in your account that has already been used up when buying a commodity contract, this contract is one that is displayed in open positions. As a trader you cannot use this amount of money after opening a trade order because you've already used it & it isn't available to you.

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

Free margin : amount in your account which you can use to open new trades. This is the amount of money in your account which hasn't yet been Leverage Examples because you've not yet opened a trade transaction using this money - this money is also very important for you as a trader because it enables you as a trader to continue holding your open trades as explained below.

However, if you over use commodity trading Leverage Example, this free margin will go below a certain % at which your broker will have to close all your trades automatically, leaving you with a big loss. The broker at this point liquidates all your position because if your trades were to be left open they would lose the money you've borrowed from them.

This is why you should always make sure you have a lot of free margin. To do this never trade more than 5 % of your commodities account, in fact 2 percent is adviced.

Difference Between Commodity Leverage Examples Set by the Broker and Used Trading Leverage Example

If the set commodity trading Leverage Example is 100: 1, what it means is thatthat-as-a-trader you can borrow upto $100 for each 1 dollar you have in your account, but you don't have to borrow all the $100 for each 1 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 commodity trading Leverage Examples will be 50:1 or 20:1 that you have borrowed to make a trade transaction.

Example:

You have $1000 (Equity)

Set 100:1

Commodity Trading Leverage Example Used = Amount used /Equity

If you buy commodity lots equal to 100,000 dollars you will have used

= 100,000/1000

= 100:1

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

= 50,000/1000

= 50:1

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

= 20,000/1000

= 20:1

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

The used is 100:1, 50:1, 20:1 depending on the size of commodity lots traded.

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

This question may seem straight forward but it's not, because when you trade you use borrowed money known A.K.A. Commodity Trading 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 security is based on monthly deduction from your salary, same thing with Commodities.

In commodity 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 amount you must keep what is known-asreferred-to-as the required trading capital (your deposit).

Now if Your Commodity Trading Leverage Examples is 100:1

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

But this is if your broker has set 0 percent Commodities Margin Requirement before closing your commodities trades automatically.

For 20 percent requirement before liquidating your commodities trades automatically, then your open trades will get closed once your balance gets to $200

For 50% requirement of this level before closing your commodities trades automatically, then your open trades will get closed out once your balance gets to $500

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

Most brokers don't set 100% requirement, but there are those that set 100% are not appropriate for you at all, select those set 50 % or 20 % margin requirement, in fact, those brokers which set their margin requirement at 20% are some of the best because the likely-hood they close your trade position is reduced as displayed in the example above.

To know about this level which is calculated by your platform automatically - The MetaTrader 4 Commodity Platform will show this as "Commodities Margin Requirement", This will be highligthed as a % the higher the percent the less likely your trades are to get liquidated.

For Example if

Using 100:1

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

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

Calculation:

= Capital Used * %(100)

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

Commodities Trading Margin Requirement = 1,000 %

InvestorTrader has 980% above the requirement amount

Using 10:1

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

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

Calculation:

= Capital Used * %(100)

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

Commodities Margin Requirement = 100%

Investor has 80% above the required amount

Because when a trader has a higher commodity trading Leverage Example means that they have more percent above what is required (A.K.A. Known As More "Free Commodities Margin") their open commodity transactions are less likely to get closed. This is reason why traders will choose the ratio 100:1 for their trading account but according to their money management rules, they won't trade above 5:1 leverage ratio.

The Levels are Dislayed on Software Image Below as an Example:

MT4 Commodity Trading Platform