What Is Margin Level?
Put simply, Margin Level indicates how “healthy” your trading account is. It is the ratio of your Equity to the Used Margin of your open positions, indicated as a percentage. As a formula, Margin Level looks like this: (Equity/Used Margin) X 100. Let’s say a trader has an equity of $5,000 and has used up $1,000 of margin. His margin level, in this case, would be ($5,000/$1,000) X 100 = 500%. This is considered to be a very healthy account! A good way of knowing whether your account is healthy or not is by making sure that your Margin Level is always above 100%.
How does the Margin Level of a trading account fall or rise?
If your open positions don’t work out and you make losses, your Account Equity will fall - and along with it the Margin Level. If you make a profit, this will top up your balance and your Margin Level will rise.
What if my Margin Level dips below 100%?
If this happens, it’s time to add funds to your account or close some positions so that all your positions are supported. You can check how your positions are affecting your account by calculating your Free Margin.
What if the Margin Level keeps falling?
If it gets seriously low, you’ll receive a Margin Call. This is a notification that your Margin Level has reached a fixed limit of 40%.
Your balance is $5,000 and your Margin Call Level is set at 40%
Your trades don’t go your way and you make $3,800 of losses.
You’ve used up $1,000 of margin, so your Margin Level is now: ($5,000 - $3,800) / 1,000 x 100 = 120%.
If it falls another 80%, you’ll receive a margin call.
Then it’s time to either deposit more money or close losing positions, to free up more margin.
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