Forex: Maintenance Margin
Maintenance margin refers to the minimum amount you need to maintain in your forex trading account.
Maintenance Margin in Detail
For trading of forex and other financial instruments, brokerages set a limit for leverage, called as a margin ratio.
Apart from the margin ratio, brokerages also set a minimum margin to be maintained at all times during a trade. The maintenance margin is typically 25-40% of equity or margin used in a trade.
Example 1: Let's say you have purchased 100 units of the USD-AUD currency pair at AUD 116.082. Your broker has provided a margin ratio of 4:1, so your equity in this transaction is AUD 29.0205, and the remaining amount is funded by the broker. Even though you have leverage, your broker will require a certain amount to be maintained in your account till the time you don't sell off the units. If the broker sets a maintenance margin of 40%, you need to have at least 40% of your equity or 11.6082 (40% of 29.0205) in your account at all times till you settle the trade.
How much is the maintenance margin?
Typically the maintenance margin for forex trade is between 25 and 40% of margin used in a particular trade. The exact percentage depends on your broker.
Example 2: Forex.com, a leading forex trading site, requires to maintain a 100% maintenance margin. Continuing with the above example, if your equity in the trade is worth AUD 29.0205, you need to have a maintenance margin of AUD 29.0205 at all times.
What happens if you go below the maintenance margin?
If your funds go below the maintenance margin, you will get a margin call from your broker. You will be asked to deposit the difference of funds between your present balance and the required maintenance margin.
In some cases, the broker may sell off some of your holdings at the current market price. If the broker sells off your investments at a market price lower than your original investment value, sometimes this could mean huge losses to you.
Use our Forex calculator to check the margin used, which can be used to determine the maintenance margin using the percentage set by your forex broker.
Forex: Supporting guides and articles
Use our Multi-Currency Forex Margin Calculator which is updated daily to calculate the best forex rate and manipulate forex margin ratio metrics for bespoke Forex Investment results. A popular and powerful free Forex tool.
- Forex Exchange Rate: Exchange rate is the price of one currency in another currency. Exchange rate is also known as the rate of exchange
- Forex Currency Pair: When you deal in the forex market, you deal in currency pairs. You cannot buy an individual currency. Instead you buy units of currency pairs.
- Forex Leverage: Forex leverage refers to investing in the forex market on a credit basis or by using debt.
- Forex Market: Forex or the foreign exchange market is used by people for buying and selling of currencies. The forex market is also known as the currency market.
- Forex Trading: Forex trading refers to the buying and selling of currencies to take advantage of the price movements and volatility of the forex market.
- Forex Margin Call: Margin call is a call from your forex broker when your account balance goes below the maintenance margin.
- Forex Margin Ratio: Forex Trading: Margin ratio is used for expressing the forex leverage in a ratio format.
- Forex Margin Used: Margin used indicates the amount you have actually used in a Forex trade, excluding any leverage.
- Forex Maintenance Margin: Maintenance margin refers to the minimum amount you need to maintain in your forex trading account.
- Forex: Price Interest Points (PIPs): PIPs or Price Interest Points are commonly used by forex traders to indicate profits or losses.
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