How to calculate margin level in Forex trading
To Forex traders, the margin level is a crucial metric to keep an eye on.
After all, it’s what prevents us from blowing up our accounts and getting a margin call.
Thankfully, instead of having to manually calculate the margin level, most Forex trading platforms will automatically do this for us.
For example, the MetaTrader 4 platform shows the margin level in the Terminal window, under the ‘Trade’ tab:
This being said, it will be helpful for Forex traders to understand how the margin level is calculated.
What’s a Margin level?
But wait… what’s a margin level in the first place?
Most traders know what the used margin is, but how is it different from the margin level?
- The margin level is your equity divided by the used margin, expressed in percentage terms.
It measures the number of times the used margin can be covered by the current value of your account.
How to Calculate the Margin level
So if your account equity is $10,500 and your used margin is $1,000, your margin level would be 1,050%.
Another example: if your account equity is $10,500 and your used margin is $20,000, your margin level would be 52.50%
Significance of Margin levels
The margin level is an indicator of how volatile your trading results are likely to be. The lower your margin level, the larger swings in equity you’ll experience.
Safe Margin levels for Forex trading
Generally speaking, you’ll want to stick to a margin level of 500% or higher. Anything lower than that would mean that you are probably taking too much risk on your account.
Was this article helpful?
Let me know in the comments below, and please consider sharing this article if you liked it!