Used margin in Forex trading: How to effectively manage funds

2025-01-02
Terms, Learn Forex, Newbie

Mastering the operation of used margin helps to better control risk and ensures stable performance in the Forex market.

What is Used Margin?

Used Margin is the total margin required to maintain all open positions in forex trading. It represents the funds that have been "locked" and cannot be used to open new positions, as they are being used to support existing trades.

Principle of Used Margin:

Whenever you open a new position, the platform requires a certain amount of margin, which is the Required Margin. If you hold multiple positions simultaneously, each position requires its own Required Margin. When all these Required Margins are added together, that is your Used Margin. This amount is the necessary funds to maintain all current open positions.

Calculating Used Margin:

The calculation of Used Margin is very simple:

Used Margin = Total of Required Margins for all open positions

For example: If you hold two positions, with Required Margins of $400 and $300 respectively, then your Used Margin is $700.

Importance of Used Margin:

Used Margin is a key indicator in trading, as it determines how much capital you have available to open new trades. When Used Margin is too high, your available margin will become very limited, which may restrict your flexibility in the market.

Example:

Assuming you have $1,000 in your account and want to open two positions simultaneously:

USD / JPY:
Open 0.1 standard lot. Assuming the spot value is $10,000 (0.1 standard lot), the margin requirement is 4%. The calculation is as follows:
- Spot Value: 0.1 standard lot × $100,000 (spot value of 1 standard lot) = $10,000
- Required Margin: Spot Value × Margin Ratio = $10,000 × 4% = $400
Therefore, this position requires $400 of margin.

USD / CHF:
Open 0.1 standard lot. Assuming the spot value is $10,000 (0.1 standard lot), the margin requirement is 3%. The calculation is as follows:
- Spot Value: 0.1 standard lot × $100,000 (spot value of 1 standard lot) = $10,000
- Required Margin: Spot Value × Margin Ratio = $10,000 × 3% = $300
Therefore, this position requires $300 of margin.

Adding the two positions above:

Your Used Margin is $400 plus $300, totaling $700.
This $700 cannot be used to open new trades, as it is already "locked" in these two positions.

Summary:

Used Margin is the total margin you use in forex trading to maintain all open positions. This portion of funds cannot be used to open new positions. Understanding the concept of Used Margin helps manage funds, avoid unnecessary risks, and ensure the stable operation of the trading account. Through effective management of Used Margin, you can enhance trading flexibility and maintain robust capital control.

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