What is Margin Level in MT4?
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If you are a trader who is learning or has experience participating in the Forex trading market, then the term Margin level is no longer strange. This is an important term to help you understand if your trading account is secure enough to open new orders. So what exactly is Margin Level in MT4? Let’s find out in the article below.
What is Margin Level in MT4?
Margin level is a percentage (%) calculated based on equity and used margin with the following formula:
Margin Level = (Equity/Used Margin) x 100%
Forex brokers use margin to determine if a trader can open new trades:
- The higher the margin level, the more money is available for you to open new trades.
- The lower the margin, the lower the amount available for you to enter new trades.
Different brokers have different margin limits, but most will set this limit at 100% (this limit is called the margin call level).
100% margin call occurs when equity equals used margin. It usually happens when a trader has a losing trade position, and the market repeatedly goes against the trader’s desired direction, causing equity to drop. At that time, the equity will equal the used margin, and the trader cannot open any more trades.
It can be said that Margin Level is essential. It shows the current risk level of the account, from which investors can take timely measures to prevent. Investors need to regularly monitor the margin of their account as it indicates whether you have enough money to execute a new order or continue to maintain an open position. If the margin level is lower – if prolonged, it will cause a Stop out or Margin Call.
What does Margin Level mean?
Margin allows traders to open leveraged trading positions, allowing investors to trade more than their initial capital. Margin requirements vary depending on the forex broker and the region in which you open the account.
For example, if a forex broker offers a margin of 3.3% or 1:30 leverage and a trader wants to open a position worth $100,000, deposit $3,300 to enter the transaction. Brokers will provide the remaining 96.7%. As the trading volume increases, the amount of margin also requires increases.
However, remember margin can be a double-edged sword because it helps make enormous profits while also creating significant losses.
When the order is running, let’s say the order is at a loss, equity goes down, margin level goes down if equity is reduced by used margin, then margin level = 100% if lower, then margin level < 100%.
Margin level <= 100% means Free margin <=0. At this point, you cannot open any other new orders. When the margin level decreases, it means that you are losing heavily, the account is in an unsafe state, it is necessary to take timely measures to avoid a clean loss (margin level = 0% when equity = 0), or the account is damaged negative (margin level < 0% when equity < 0 ) if the market keeps going against your order. And if after that your order starts to get better, equity will increase, margin level will increase, the account will return to a safe state.
A trading account is considered safe when the margin level is > 100%, when this ratio decreases, forcing you to intervene in your account or trading orders to improve it.
In order to avoid the case that investors do not regularly monitor running transactions or are negligent in not paying attention to the margin level ratio, forex brokers have set a specific limit if the margin level falls below the limit. During this period, the exchange will notify traders through an order/warning called Margin Call so that they can intervene promptly, avoiding the situation of letting the account suffer heavy losses if the market continues to fluctuate opposite direction. Typically, forex brokers often choose a limit of 100%. When the margin level drops below 100%, a margin call occurs.
Margin trading is a profitable Forex investment strategy, but traders need to understand the possible risks. Traders must understand how the margin account works carefully read the quarterly terms offered by the forex broker. If there is anything unclear in the margin terms, ask questions and make sure you understand. Hopefully, through the above article, traders also realize what is Margin Level – margin level and the critical meanings that this indicator brings in investment.
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