In the Operations tab of our Toolbox, we can find open and pending operations, as well as view the different parameters that comprise our account information.
Among these parameters, we can find the following:
Balance
Equity
Margin
Free Margin
Margin Level
What is the account Balance?
The Balance is the amount of money in our account. It is the net financial result of all funds deposited and withdrawn from the client's account and all positions closed. The balance of the account rises and falls as operations are closed.
What is the Equity?
Our account Equity is the amount of balance that we would have in our account if we closed all open operations.
Therefore, our account Equity increases or decreases based on the outcome of the open trades. If we make a net profit on our open trades, equity will surpass the balance, which will be lower than our balance if the result is negative.
Let's see below the formula for calculating Equity:
Equity = Balance ± Result of open trades ± Swap - Commission
What is Margin?
We can define Margin as the amount of funds in the client's account that is reserved as collateral to keep the position open following the Admirals margin requirements.
Let's see below the formula for calculating the Margin:
Margin = Notional Value ÷ Leverage
What is Free Margin?
The Free Margin is the money in my real live account that is available to open new positions. Therefore, we can open new trades if there is enough Free Margin to cover the guarantee (Margin) and pay the commissions associated with opening a new position (spread and/or commissions).
Let's see below the formula for calculating the Free Margin:
Free Margin = Equity – Margin
What is the Margin Level?
The Margin Level is possibly one of the most important parameters that we must consider when operating with leveraged products since it indicates the “health” of our account since a small value of my Margin Level will be riskier for my account.
We can define the Margin Level formula as:
Margin Level = (Equity ÷ Margin) × 100
From the result of the previous formula, we can highlight two very important concepts:
Margin Call
Stop Out
We reach the Margin Call level when the Margin Level of our account reaches 100%. Following the previous formulas, this implies that the Equity is equal to the Margin retained as collateral, and therefore, the Free Margin is equal to 0.
Mathematically speaking, we can reach the Margin Call level either due to a very high level of losses or due to excessive leverage of my account, that is, by having a very high Margin.
Let's see an example of this below:
Example of how to perform the calculations described above.
Let's assume the following parameters for our account:
Account Currency = EUR
Balance = 10.000 EUR
Leverage = 1:30
We have an open Buy order in the EURUSD of 1 lot with a negative result of 400 EUR, without swap and commissions.
Equity = Balance ± Result of open trades ± Swap - Commission
Equity = 10.000 - 400 = 9600 EUR
Margin = Notional Value ÷ Leverage
Margen = (1 lot × 100.000) ÷ 30 = 3333,33 EUR
Free Margin = Equity – Margin
Free Margin = 9600 – 3333,33 = 6.266,67 EUR
Margin Level = (Equity ÷ Margin) × 100
Margin Level = (9600 ÷ 3333,33) × 100 = 288%
Please note that by default, MetaTrader will perform all monetary calculations in the base currency of our account, so if our base currency and the currency of the instrument we are trading are different, the system will apply the corresponding exchange rate quoted on the market at that time.
If you have any questions, do not hesitate to contact us.
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