آشنایی با جفت ارزهای متقاطع

What is a Stop Out Level?

In forex trading, a Stop Out Level is when your Margin Level falls to a specific percentage (%) level in which one or all of your open positions are closed automatically (“liquidated”) by your broker.

This liquidation happens because the trading account can no longer support the open positions due to a lack of margin.

More specifically, the Stop Out Level is when the Equity is lower than a specific percentage of your Used Margin.

If this level is reached, your broker will automatically start closing out your trades starting with the most unprofitable one until your Margin Level is back above the Stop Out Level. Stop Out Level Diagram

If your Margin Level is at or below the Stop Out Level, the broker will close any or all of your open positions as quickly as possible in order to protect you from possibly incurring further losses.

This act of closing your positions is called a Stop Out.

Keep in mind that a Stop Out is not discretionary. Once the liquidation process has started, it is usually not possible to stop it since the process is automated.

 

Your broker’s customer support team will probably NOT be able to help you aside from lending an ear while you weep loudly over the phone.

The Stop Out Level is also known as the Margin Closeout Value, Liquidation Margin, or Minimum Required Margin.

Example: Stop Out Level at 20%

Let’s say your forex broker has a Stop Out Level at 20%.

This means that your trading platform will automatically close your position if your Margin Level reaches 20%.

Stop Out Level = Margin Level @ 20%

Let’s continue with the example from the previous lesson, What is a Margin Call Level?

You’ve already received a Margin Call when the Margin Level had reached 100% but still decide not to deposit more funds because you think the market will turn.

Not only are you a sucky trader, but you’re a crazy trader also. A sucky crazy trader.

 

Anyways, your sucky crazy self ends up…absolutely WRONG.

The market continues to fall.

You’re now down 960 pips.

At $1/pip, you now have a floating loss of $960!

This means your Equity is now $40.

Equity = Balance + Floating P/L

$40 = $1000 - $960

Your Margin Level is now 20%.

Margin Level = (Equity / Used Margin) x 100%

20% = ($40 / $200) x 100%

*Used Margin can’t go below $200 because that’s the Required Margin that was needed to open the position in the first place.

At this point, your position will be automatically closed (“liquidated”).

When your position is closed, the Used Margin that was “locked up” will be released.

It will become Free Margin.

The end result for you will be depressing though.

Your floating loss of $960 will be “realized”, and your new Balance will be $40!

Since you don’t have any open trades, your Equity and Free Margin will also be $40.

Here’s how your account metrics would look like in your trading platform at each Margin Level threshold:

Margin Level Equity Used Margin Free Margin Balance Floating P/L
Margin Call Level 100% $200 $200 $0 $1,000 -$800
Stop Out Level 20% $40 $200 $0 $1,000 -$960
Stop Out (Liquidation) $40 $40 $40

If you experience a Stop Out and see the aftermath in your account, this is how your eyes feel…

If you had multiple positions open, the broker usually closes the least profitable position first.

Each position that is closed “releases” Used Margin, which increases your Margin Level.

But if closing this position is still not enough to get back the Margin Level above 20%, your broker will continue to close positions until it does.

The Stop Out Level is meant to prevent you from losing more money than you have deposited.

If your trade continued to keep losing, eventually, you’d have no more money in your account and you’d end up with a negative account balance!

Brokers would prefer not to have to come knocking on your door with a baseball bat to collect the unpaid balance, so a Stop Out is meant to try and… STOP… your Balance from going negative.

What if I have multiple positions open?

The example above covered the scenario with you trading a single position. But what if you had MULTIPLE positions open?

Hmmm.

Sounds like you love gambling so here’s an example of how the liquidation process would work if you had two or more positions open.

Each broker has its own specific liquidation process so be sure to check with yours. BUT this is a popular approach and will at least give you a good idea of what kind of horror you might experience if you’re trading too BIG.

Let’s pretend the Stop Out level is at 100%.

If at any point, the Margin Level drops below 100% of the margin required.. you will experience an AUTO LIQUIDATION of the position that has the largest unrealized loss! 

So if you have multiple positions, the open position with the greatest unrealized loss is closed first, followed by the next largest losing position, followed by the next largest losing position, and so on, UNTIL the Margin Level (maintenance margin) is back to 100% or higher.

Depending on the size and unrealized P&L of the open positions, all your open positions could be liquidated in order to meet the margin requirement!

Remember, YOU, and YOU alone, are responsible for monitoring your account and making sure you are maintaining the required margin at all times to support your open positions.

You’ve been warned. Don’t be crying to your broker when your position gets auto-liquated.

You can still cry of course. But only in front of a mirror.

Now that we’ve covered all the important metrics that you need to know in your trading platform, let’s take everything you’ve learned so far about margin trading and put it all together using different trading scenarios.

What is a Margin Call Level?

When this threshold is reached, you are in danger of the POSSIBILITY of having some or all of your positions forcibly closed (or “liquidated“).

The Margin Level is the “metric” and the “Margin Call Level” is a specific “value” of the metric (which is the Margin Level).

Yeah, it’s awkward. But don’t blame us, we’re not the ones who name these things.

For example, some forex brokers have a Margin Call Level of 100%.

Margin Call Level Diagram

In the specific example above,  if the Margin Level in your account falls to 100% or lower, a “Margin Call” will occur.

Not familiar with the concept of Margin Level? Read our lesson, What is Margin Level?

What is a Margin Call?

Margin Call is when your broker notifies you that your Margin Level has fallen below the required minimum level (the “Margin Call Level”).

This notification used to be an actual phone call, but nowadays, it’s usually an email or text message.

Regardless of how you’re actually notified, the feeling isn’t great.

Receive a Margin Call

A Margin Call occurs when your floating losses are greater than your Used Margin.

This means that your Equity is less than your Used Margin (since floating losses reduce your Equity).

“Margin Call Level” vs. “Margin Call”

Traders tend to get confused between a Margin Call Level and Margin Call.

  • A “Margin Call Level” is a threshold set by your broker that will trigger a “Margin Call”. It is a specific percentage (%) value of the Margin Level. For example, when the Margin Level is 100%.
  • A “Margin Call” is an event. When a Margin Call occurs, your broker takes some sort of action. Usually, the action is “to send a notification”. This event only occurs when the Margin Level falls below a certain value. This value is the “Margin Call Level”.

Think about boiling water.

Boiling Water

For water to normally boil, the temperature must reach 100° C.

  • The Margin Level is equivalent to temperature. Temperature can vary and can be any number like 0° C, 47° C, 89° C, etc.
  • The Margin Call Level is equivalent to 100° C, which is a specific temperature.
  • Margin Call is equivalent to water boiling, the event when the liquid changes into a vapor.

Example: Margin Call Level at 100%

Let’s say your forex broker has a Margin Call Level at 100%. This means that your trading platform will send you a warning notification if your Margin Level reaches 100%.

Margin Call Level = Margin Level @ 100%

Aside from receiving a notification, your trading will also be affected.

If your account’s Margin Level reaches 100%, you will NOT  be able to open any new positions, you can only close existing positions.

A Margin Call Level at 100% means that your Equity is equal to or lower than your Used Margin.

This occurs because you have open positions whose floating losses continue to INCREASE.

Let’s say you have a $1,000 account and you open a USD/CHF position with 1 mini lot (10,000 units) that has a $200 Required Margin.

Since you only have one position open, Used Margin will also be $200 (same as Required Margin).
Margin Call Level Example with USDCHF

At this point, you still suck at trading so right away, your trade quickly starts losing.

It’s losing big time. (You really suck at trading.)

You’re now down 800 pips. 

At $1/pip, this means you have a floating loss of $800!

This means your Equity is now $200.

Equity = Balance + Floating P/L

$200 = $1000 - $800

Your Margin Level is now 100%.

What is Margin Level?

Margin Level allows you to know how much of your funds are available for new trades.

The higher the Margin Level, the more Free Margin you have available to trade.

The lower the Margin Level, the less Free Margin available to trade, which could result in something very bad…like a Margin Call or a Stop Out (which will be discussed later).

How to Calculate Margin Level

Here’s how to calculate Margin Level::

Margin Level = (Equity / Used Margin) x 100%

Your trading platform will automatically calculate and display your Margin Level.

If you don’t have any trades open, your Margin Level will be ZERO.

Margin Level is very important. Forex brokers use margin levels to determine whether you can open additional positions.

 

Different brokers set different Margin Level limits, but most brokers set this limit at 100%.

This means that when your Equity is equal to or less than your Used Margin, you will NOT be able to open any new positions.

If you want to open new positions, you will have to close existing positions first.

Example #1: Open a long USD/JPY position with 1 mini lot

Let’s say you have an account balance of $1,000.

Account Balance

Step 1: Calculate Required Margin

You want to go long USD/JPY and want to open 1 mini lot (10,000 units) position. The Margin Requirement is 4%.

How much margin (Required Margin) will you need to open the position?

Since USD is the base currency. this mini lot is 10,000 dollars, which means the position’s Notional Value is $10,000.

Required Margin = Notional Value x Margin Requirement

$400 = $10,000 x .04

Assuming your trading account is denominated in USD since the Margin Requirement is 4%, the Required Margin will be $400.

Required Margin Example

Step 2: Calculate Used Margin

Aside from the trade we just entered, there aren’t any other trades open.

Since we just have a single position open, the Used Margin will be the same as Required Margin.

Used Margin Example

Step 3: Calculate Equity

Let’s assume that the price has moved slightly in your favor and your position is now trading at breakeven.

This means that your Floating P/L is $0.

Let’s calculate the Equity:

Equity = Account Balance + Floating Profits (or Losses)

$1,000 = $1,000 + $0

The Equity in your account is now $1,000.

Equity with Breakeven Floating P/L

Step 4: Calculate Margin Level

Now that we know the Equity, we can now calculate the Margin Level:

Margin Level = (Equity / Used Margin) x 100%

250% = ($1,000 / $400) x 100%

The Margin Level is 250%.Margin Level

If the Margin Level is 100% or less, most trading platforms will not allow you to open new trades.

In the example, since your current Margin Level is 250%, which is way above 100%, you’ll still be able to open new trades.

 

What is Free Margin?

Used Margin, which is just the aggregate of all the Required Margin from all open positions, was discussed in a previous lesson.

Free Margin is the difference between Equity and Used Margin.

Free Margin refers to the Equity in a trader’s account that is NOT tied up in margin for current open positions.

Free Margin is also known as “Usable Margin” because it’s margin that you can “use”….it’s “usable”.

Free Margin can be thought of as two things:

  1. The amount available to open NEW positions.
  2. The amount that EXISTING positions can move against you before you receive a Margin Call or Stop Out.

 

Don’t worry about what a Margin Call and Stop Out are. They will be discussed later.

 

For now, just know they’re bad things. Like acne breakouts, you don’t want to experience them.

Free Margin is also known as Usable MarginUsable Maintenance MarginAvailable Margin, and “Available to Trade“.

How to Calculate Free Margin

Here’s how to calculate Free Margin:

Free Margin = Equity - Used Margin

If you have open positions, and they are currently profitable, your Equity will increase, which means that you will have more Free Margin as well.

Floating profits increase Equity, which increases Free Margin. 

If your open positions are losing money, your Equity will decrease, which means that you will also have less Free Margin as well.

Floating losses decrease Equity, which decreases Free Margin. 

Example: No Open Positions

Let’s start with an easy example.

You deposit $1,000 in your trading account.

You don’t have any open positions, what is your Free Margin?

Step 1: Calculate Equity

If you don’t have any open position, calculating the Equity is easy.

Equity = Account Balance + Floating Profits (or Losses)

$1,000 = $1,000 + $0

The Equity would be the SAME as your Balance.

Since you don’t have any open positions, you don’t have any floating profits or losses.Account Equity

Step 2: Calculate Free Margin

If you don’t have any open positions, then the Free Margin is the SAME as the Equity.

Free Margin = Equity - Used Margin

$1,000 = $1,000 - $0

Since you don’t have any open positions, there is no margin being “used”.

This means that your Free Margin will be the same as your Balance and Equity.Free Margin

Example: Open a Long USD/JPY Position

Now let’s make it a bit more complicated by entering a trade!

Let’s say you have an account balance of $1,000.Account Balance

Step 1: Calculate Required Margin

You want to go long USD/JPY and want to open 1 mini lot (10,000 units) position. The Margin Requirement is 4%.

How much margin (Required Margin) will you need to open the position?

Since USD is the base currency. this mini lot is 10,000 dollars, which means the position’s Notional Value is $10,000.

Required Margin = Notional Value x Margin Requirement

$400 = $10,000 x .04

Assuming your trading account is denominated in USD, since the Margin Requirement is 4%, the Required Margin will be $400.Required Margin Example

Step 2: Calculate Used Margin

Aside from the trade we just entered, there aren’t any other trades open.

Since we just have a SINGLE position open, the Used Margin will be the same as Required Margin.Used Margin Example

Step 3: Calculate Equity

Let’s assume that the price has moved slightly in your favor and your position is now trading at breakeven.

This means that your floating P/L is $0.

Let’s calculate your Equity:

Equity = Account Balance + Floating Profits (or Losses)

$1,000 = $1,000 + $0

The Equity in your account is now $1,000.Equity with Breakeven Floating P/L

Step 4: Calculate Free Margin

Now that we know the Equity, we can now calculate the Free Margin:

Free Margin = Equity - Used Margin

$600 = $1,000 - $400

The Free Margin is $600.Free Margin Example

As you can see, another way to look at Equity is the sum of your Used and Free margin.

Equity = Used Margin + Free Margin
انواع همبستگی جفت ارزها

What is Equity?

Equity is the current value of the account and fluctuates with every tick when looking at your trading platform on your screen.

It is the sum of your account balance and all floating (unrealized) profits or losses associated with your open positions.

As your current trades rise or fall in value, so does your Equity.

How to Calculate Equity If You Have No Trades Open

If you do NOT have any open positions, then your Equity is the same as your Balance.

Equity = Account Balance

Example: Account Equity When You Have No Open Trades

You deposit $1,000 in your trading account.

Since you haven’t opened any trades yet, your Balance and Equity is the same.Account Equity

How to Calculate Equity If You Have Trades Open

If you have open positions, your Equity is the sum of your account balance and your account’s floating P/L.

Equity = Account Balance + Floating Profits (or Losses)

Example: Account Equity When an Existing Trade  is  Losing

You deposit $1,000 in your trading account.

Beyoncé tweets that she’s shorting GBP/USD. Because she’s Beyoncé, you follow what she says and go short also.

Price moves immediately against you and your trade shows a floating loss of $50.

Equity = Account Balance + Floating Profits (or Losses)

$950 = $1,000 + (-$50)

The Equity in your account is now $950.Account Equity with Floating Loss

Example: Account Equity When an Existing Trade is Winning

Beyoncé tweets again and says she’s changed her mind. She’s now long GBP/USD.

Not only is she Crazy in Love, but she seems crazy in trading also.

Price moves immediately in your favor and your trade shows a floating gain of $100.

Equity = Account Balance + Floating Profits (or Losses)

$1,100 = $1,000 + $100

The Equity in your account is now $1,100.Account Equity with Floating Profit

Your account equity continuously fluctuates with the current market prices as long as you have any open positions.

Equity shows the “TEMPORARY” value of your account at the current time. (Unlike a tattoo, which is…not temporary.)

That’s why Equity is seen as a “floating account balance“. It will only become your “real account balance” if you were to close all your trades immediately.

What is the difference between Balance and Equity?

Let’s start with a simple answer.

If your account is “flat” or does NOT have any positions open, then your Balance and Equity are the SAME.

But if you do have open positions, this is when the Balance and Equity differ.

  • The Balance reflects your profit/loss from closed positions.
  • The Equity reflects the real-time calculation of your profit/loss. The Equity takes into account both open AND closed positions.

This means that when you’re looking at your Balance, it is NOT the actual real-time amount of your funds.

 

Since Equity includes current profits or losses from open trades, it is Equity that shows the real-time amount of your funds.

 

It’s possible to have a very large Balance, but very small Equity.

This happens when your open positions have a large unrealized (floating) losses.

For example, if your Balance is $1,000, and you have an open trade that has a floating loss of $900.

Your Equity is only $100.Account Equity with $900 Floating Loss

Recap

In this lesson, we learned about the following:

  • Equity is your account balance plus the floating profit (or loss) of all your open positions.
  • Equity represents the “real-time” value of your account.

In previous lessons, we learned:

  • What is Margin Trading? Learn why it’s important to understand how your margin account works.
  • What is Balance? Your account balance is the cash you have available in your trading account.
  • What is Unrealized and Realized P/L? Know how profit or losses affect your account balance.
  • What is Margin? Required Margin is the amount of money that is set aside and “locked up” when you open a position.
  • What is Used Margin? Used Margin is the total amount of margin that’s currently “locked up” to maintain all open positions.

Let’s move on and learn about the concept of Free Margin.

What is Used Margin?

In order to understand what Used Margin is, we must first understand what Required Margin is.

Whenever you open a new position, a specific amount of Required Margin is set aside.

Required Margin was discussed in detail in the previous lesson, so if you don’t know what it is, please read our What is Margin? lesson first.

If you open more than one position at a time, each specific position will have its own Required Margin.

Required Margin

If you add up all of the Required Margin of all the positions that are open, the total amount is what’s called the Used Margin.

Used Margin

Used Margin is all the margin that’s “locked up” and can’t be used to open new positions.

This is margin is already being “used”. Hence the name, Used Margin.

While Required Margin is tied to a SPECIFIC trade, Used Margin refers to the amount of money you needed to deposit to keep ALL your trades open.

Example: Open a long USD/JPY and USD/CHF position

Let’s say you’ve deposited $1,000 in your account and want to open TWO positions:

  1. Long USD/JPY and want to open 1 mini lot (10,000 units) position.
  2. Long USD/CHF and want to open 1 mini lot (10,000 units) position.

The Margin Requirement for each currency pair is as follows:

Currency Pair Margin Requirement
USD/JPY 4%
USD/CHF 3%

How much margin (“Required Margin”) will you need to open each position?

Since USD is the base currency for both currency pairs. a mini lot is 10,000 dollars, which means EACH position’s notional value is $10,000.

What is Margin Requirement?

Margin is expressed as a percentage (%) of the “full position size”, also known as the “Notional Value” of the position you wish to open.

Depending on the currency pair and forex broker, the amount of margin required to open a position VARIES.

You may see margin requirements such as 0.25%, 0.5%, 1%, 2%, 5%, 10% or higher.

This percentage (%) is known as the Margin Requirement.

Here are some examples of margin requirements for several currency pairs:

Currency Pair Margin Requirement
EUR/USD 2%
GBP/USD 5%
USD/JPY 4%
EUR/AUD 3%

What is Required Margin?

When margin is expressed as a specific amount of your account’s currency, this amount is known as the Required Margin.

EACH position you open will have its own Required Margin amount that will need to be “locked up”.

Required Margin is also known as Deposit MarginEntry Margin, or Initial Margin.

Let’s look at a typical EUR/USD (euro against U.S. dollar) trade. To buy or sell a 100,000 of EUR/USD without leverage would require the trader to put up $100,000 in account funds, the full value of the position.

But with a Margin Requirement of 2%, only $2,000 (the “Required Margin“) of the trader’s funds would be required to open and maintain that $100,000 EUR/USD position.

What is Margin?

When trading forex, you are only required to put up a small amount of capital to open and maintain a new position.

This capital is known as the margin.

For example, if you want to buy $100,000 worth of USD/JPY, you don’t need to put up the full amount, you only need to put up a portion, like $3,000. The actual amount depends on your forex broker or CFD provider.

Margin can be thought of as a good faith deposit or collateral that’s needed to open a position and keep it open.

It is a “good faith” assurance that you can afford to hold the trade until it is closed.

Margin is NOT a fee or a transaction cost.

Margin is simply a portion of your funds that your forex broker sets aside from your account balance to keep your trade open and to ensure that you can cover the potential loss of the trade.

آشنایی با جفت ارزهای متقاطع

What is Account Balance?

Once your account is approved, then you can transfer funds into the account.

This new account should only be funded with “risk capital”, which is cash you can afford to lose.

The “Account Balance” or simply “Balance” is the starting balance of your account.

Basically, it’s the amount of CASH in your account.

 

Think of it this way:

Balance = CashYour Balance measures the amount of cash you have in your trading account.

If you deposit $1,000, then your Balance is $1,000.

If you enter a new trade or in trader lingo, “open a new position”, your account balance is not affected until the position is CLOSED.

This means that your Balance will only change in one of three ways:

  1. When you add more funds to your account.
  2. When you close a position.
  3. When you keep a position open overnight and either receive or pay swap/rollover fee.

Since the topic is about margin, the concepts of swap and rollover aren’t really related but for thoroughness, we’ll quickly describe it since swap fees do affect your Balance.

 

The procedure of moving open positions from one trading day to another is called a rollover.

During this rollover, a swap is calculated.

A swap is a FEE that is either paid or charged to you at the end of each trading day if you keep your trade open overnight.

If you are paid swap, cash will be added to your Balance.

If you are charged a swap, cash will be deducted from your Balance.

Unless you’re trading huge position sizes, these swap fees are usually small but can add up over time.

In MetaTrader, you can see swaps on your open position (if you keep it open for longer than 1 day) by opening a “Terminal” window and clicking on the “Trade” tab.

Swap in Forex

The concept of swap and rollover is beyond the scope of this lesson and will not be discussed further, but we just wanted to cover if briefly for accuracy’s sake.

Now that we know what Balance means, let’s move on to understanding the concepts of “Unrealized P/L” and “Realized P/L” and how they affect your Balance.

Why Trade Forex: Advantages Of Forex Trading

There are many benefits and advantages of trading forex.

Here are just a few reasons why so many people are choosing this market:

No commissions

No clearing fees, no exchange fees, no government fees, no brokerage fees. Most retail forex brokers are compensated for their services through something called the “spread“.

No fixed lot size

In the futures markets, lot or contract sizes are determined by the exchanges. For example, a standard-sized contract for silver futures is 5,000 ounces.

 

In forex, you can trade smaller lot sizes or position size. This allows traders to open trades as small as 1,000 units.

 

Low transaction costs

The retail transaction cost (the bid/ask spread) is typically less than 0.1% under normal market conditions.

For larger transactions, the spread could be as low as 0.07%. Of course, this depends on your leverage, and all that will be explained later.

A 24-hour market

There is no waiting for the opening bell. From the Monday morning opening in Australia to the Friday afternoon close in New York, the forex market never sleeps.

 

This is awesome for those who want to trade on a part-time basis because you can choose when you want to trade: morning, noon, night, during breakfast, or in your sleep.

The FX market is sufficiently liquid that significant manipulation by any single entity is all but impossible during active trading hours for the major currencies.

The foreign exchange market is so huge and has so many participants that no single entity (not even a central bank or the mighty Chuck Norris himself) can control the market price for an extended period of time.

Leverage

In forex trading, a small deposit can control a much larger total contract value. Leverage gives the trader the ability to make nice profits, and at the same time keep risk capital to a minimum.

For example, a forex broker may offer 50-to-1 leverage, which means that a $50 dollar margin deposit would enable a trader to buy or sell $2,500 worth of currencies. Similarly, with $500 dollars, one could trade with $25,000 dollars and so on.

While this is all gravy, let’s remember that leverage is a double-edged sword. Without proper risk management, this high degree of leverage can lead to large losses as well as gains.

Deep Liquidity

Because the forex market is so enormous, it is also extremely liquid. This is an advantage because it means that under normal market conditions, with a click of a mouse, you can instantaneously buy and sell at will.

You are never “stuck” in a trade. You can even set your online trading platform to automatically close your position once your desired profit level (a limit order) has been reached, and/or close a trade if a trade is going against you (a stop loss order).

Low Barriers to Entry

You would think that getting started as a currency trader would cost a ton of money. The fact is, when compared to trading stocks, options, or futures, it doesn’t. Online forex brokers offer “mini” and “micro” trading accounts, some with a minimum account deposit of $50.

We are NOT saying you should open an account with the bare minimum, but it does make forex trading much more accessible to the average individual who doesn’t have a lot of start-up trading capital.

Free Stuff Everywhere!

Most online forex brokers offer “demo” accounts to practice trading and build your skills, along with real-time forex news and charting services.

And guess what?! They’re all free!

Demo accounts are very valuable resources for those who are “financially hampered” and would like to hone their trading skills with “play money” before opening a live trading account and risking real money.