Use this handy Forex & Crypto Margin & Leverage Calculator to calculate accurately the amount of funds required to open a trading position, or used to open a new trade, based on the lot size and the available leverage offered by your broker.e.
What are Leverage & Margin in Trading?
Leverage allows a trader to control a larger position using less money (margin) and therefore greatly amplifies both profits and losses. Leveraged trading is also called margin trading.
Leverage will amplify potential profits and losses. For example, buying the EUR/USD at 1.0000 with no leverage, to take a total loss the price must go to zero, or to 2.0000 to double your investment. If you trade using the full 100:1 leverage, a price movement of 100 times less will produce the same profit or loss.
Margin is the capital a trader must put up to open a new position. It is not a fee or cost and is freed up again once the trade is closed. Its purpose is to protect the broker from losses. When losses cause a trader's margin to fall below a pre-defined stop out percentage, one, or all open positions, are automatically closed by the broker. A margin call warning from the broker may or may not precede such liquidation.
How Does Leverage Work
With 100:1 leverage a trader can open a position 100 times greater than they could without leverage. For example, if the cost to open a trading position of 0.01 lots of EUR/USD is $1,000 without leverage, and a broker offers 100:1 leverage, then a trader must use only $10 as margin. Of course, traders can also use little leverage, like 30:1 or 5:1, or no leverage at all.
Caution: Higher leverage ratios means higher risks. Most professional traders use a low leverage ratios, up to 5:1, or none at all, and a modest risk percentage per trade (2%).
How to Use the Leverage & Margin Calculator
Instrument: In this field traders can select from several forex crosses, including major and minor pairs, from the most popular cryptocurrencies (ADA, BTC, DOGE, ETH, LTC, Stellar, Ripple, etc), popular inidces and commodities, such as Gold, Silver and Oil. For our example, we will choose the EUR/USD.
Deposit currency: Margin values differ for forex pairs, and other financial instruments, and are subject to the current market quote. By selecting the deposit currency, it will be possible to accurately display the margin required to open a position, for the selected instrument, in the choosen currency (from AUD to ZAR). We will choose GBP as our deposit currency, for this example.
Leverage: In this field traders just need to input a leverage ratio. This could be the current leverage offered by the broker, or any other ratio, from as little as 1:1 to 6000:1 to simulate the amount of margin used to open a position. For our example, we will select a leverage of 30:1.
Lots (trade size): Just enter the lot size. Remember, in forex 1 lot is 100,000 currency units per lot, but units per lot vary for non-forex pairs. So, in this field there's also the option of switching between lots and units for the calculations. For our example, we will use a trade size of 0.10.
Next, we click the "Calculate" button.
The results: Using all the data above the Leverage & Margin Calculator tell us that to open a trade position, long or short, of a 0.10 lot EUR/USD, with 30:1 leverage, and with the current EUR/GBP exchange rate of 0.90367, we would need a margin of 301,22 GBP.
The Leverage & Margin Calculator can also be used to find the least "expensive" pairs to trade. By using the same calculating parameters (30:1 leverage and a 0.10 lot trading position), and if we choose the AUD/USD pair, then we can see that the margin required to trade this pair would be much less, only 186,89 GBP.
You might also find our What is Leverage in Forex and How to Use It article useful. It's packed with useful info that can help traders in understanding what is the leverage in forex and how to use it safely in FX trading, how leverage has a direct effect on a trading account's capital, what is a margin call, how to avoid a margin call and much more.
