What is margin level?

If you want to know how much money you still have to open new positions, you are looking for the margin level. Margin levels are always expressed in percentage. It is the value depending on the equity and used margin. So, as the margin level increases, the free margin increases. The same is true when the margin level is lower, then the free margin you can use to open a new trade is also lower.

For added information, free margin is the difference we can get between equity and used margin. Free margin is not locked up, and you can use this to open up a new trade, unlike the used margin that gets locked up to keep a position open.

Learning how to calculate the margin level

Margin level = (equity/ used margin) * 100%

This is the formula that we use when looking for the margin level, even though trading platforms will automatically calculate and display this for you.

If the forex broker does not use the margin level, we can never be sure whether we can open a new position. Forex brokers set a 100% limit of margin level most of the time, but this may vary from one forex broker to another. If your equity is breakeven and not more than the used margin, it is impossible to create a new trade. The only way to open a new position is by closing your current positions.

Let us cite an example using a long one mini lot EUR/ USD position

You plan to trade today, so; you deposited $2,000 in your account balance. You want to go on a long position with a one mini lot EUR/ USD currency pair. The margin requirement of the position that you want to open is 3%

Here is the first step: Calculating your required margin

Required margin = notional value* margin requirement

$300= $10,000 * 0.03

Your required margin is $300. If there are confusions somewhere, here is a simple explanation of how we ended up having these figures:

  • The notional value is $10,000 because a mini lot is equal to $10,000.
  • We used 0.03 because the margin requirement is 3%.

Second step: calculating the used margin

The used margin is similar to the required margin because we only have one open position. Furthermore, the used margin is the sum of the required margins of all open positions. So, in this case, the used margin is also $300.

Third step: Calculating your equity

Let us say that your EUR/USD trade is on the winning side. Right now, you already see a $200 profit. Here is the formula used:

Equity = account balance + unrealized P/L

$2,200= $2,000+ $200

Your account equity is $2,200.

Finally, calculating your margin level

Margin level = (Equity / Used margin) * 100%

550% = ($2,200/ $300)* 100%

Since we know that the margin level is not just a breakeven with 100%, but more, then you will be able to open more new trades. For additional information, if you do not have active trades at the moment, the margin level will always be zero.