Stock Leverage Examples and Margin Example and Example

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

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

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

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

Free margin : amount in your account which you can use to open new trade positions. This is the amount of money in your account which hasn't yet been stock 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 stock Trading Leverage Example, this free margin will drop below a certain percent at which your stocks broker will have to close all your positions automatically, leaving you with a big loss. The stocks broker at this point will automatically close-out all your open trades because if your open trades are left open then your broker would lose money that you would 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 percentage of your stocks account, in fact 2 percent is recommended.

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

If the set stock Trading Leverage Example is 100: 1, it means you can borrow up to 100 dollars for every 1 dollar that you have, but you don't have to borrow all of the 100 dollars for every dollar that you've, but you can decide to borrow 50:1 or 20:1. In this case even though the leverage ratio option set 100:1 your used stock 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

Stock Leverage Example Used = Amount used /Equity

If you buy stock lots equal to 100,000 dollars you'll have used

= 100,000/1000

= 100:1

If you buy stock trading lots equal to 50,000 dollars that as a trader you'll have used

= 50,000/1000

= 50:1

If you buy stock trading lots equal to 20,000 dollars that as a trader you will 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 size of stock lots traded.

So Why not Just Select 10:1 option as the Maximum Stock Trading Leverage Example? Because to keep within the proper risk management rules it is even recommended that investors 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. Stock 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 Stock Trading.

In stock trading the security is referred to as margin. This is the 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 Stock Leverage Examples is 100:1

When trading if you have $1,000 & use option 100:1 & buy 1 standard lot for $100,000 your margin on this transaction is the $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 stock trade transactions automatically once your $1,000 has been taken by the stock market.

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

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

For 50% requirement of this level before closing your stocks 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 out your open trade positions automatically, then your trade will be closed once your trading account balance gets to $1,000: Meaning trade will close-out as soon as you execute it because even if you were to pay 1 pip spread your trade account balance will get to $990 & the 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 that set 100% are not suitable for you at all, select those set 50% or 20% margin requirements, in fact, those stock brokers that set at 20% are some of the best because the likely hood they close-out your trade is reduced as displayed in the example above.

To know about this level which is calculated by your platform automatically - The MT4 Stock Platform will display this as "Stock 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 stock Trading Leverage Example is 100:1 and you transact stock lots equal to $10,000

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

Calculation:

= Capital Used * Percent(100)

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

Stock Trading Margin Requirement = 1,000 %

Investor has 980% above required amount

Using 10:1

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

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

Calculation:

= Capital Used * Percent(100)

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

Stock Margin Requirement = 100 %

Investor has 80% above the required amount

Because when a trader has a higher stock Trading Leverage Example means that they have more percentage above what's required(A.K.A. More "Free Stock Trading Margin") their open stock trading transactions are less likely to get closed. This is 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 Levels are Shown on The Software Screen-Shot Below as an Examples:

MetaTrader 4 Stocks Trading Platform