Forex: Margin Ratio
Margin ratio is used for expressing the forex leverage in a ratio format.
Margin Ratio in Detail
When trading in financial instruments such as stocks, commodities or forex, your broker will provide you with leverage to help you in trading. This leverage will allow you to make purchases of more than the funds available with you. However, the broker will set a limit on the amount of leverage available. This limit will be expressed as margin ratio.
Example 1: For every $100 you invest in forex, let's say your brokerage will allow you to make purchases of $300. This will be expressed as a margin ratio of 3:1. If the broker allowed you a leverage of $400, the margin ratio would be 4:1.
Margin Ratio for Forex
The margin ratio available for trading varies by instruments. For equities, the margin ratio is typically 2:1, meaning for every $100 in your account your broker will allow you to purchase equity worth $200.
In the foreign exchange market, most brokers provide a very high margin ratio, sometimes up to 400:1. So for every $100 in your account you can purchase forex of up to $40,000.
The margin ratio or leverage is determined by your brokerage, and you should confirm the margin ratio before any trading.
Use our Forex margin calculator to determine your 'margin used' based on the margin ratio and the number of units. Whether an active forex trader, a student reviewing forex or simply interested in forex, try out our Forex margin calculator.
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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