Every time a trader takes a position in Forex, using the services of Internet broker (dealing company), part of the money in his account frozen. This part is called a damage deposit, and is used to provide assurance that a trader will never lose more money than is available in their account. Frozen funds are called free portion of the account and can be used to open new positions. But to use the full amount of the bill to the opening position is not recommended as part of the free accounts are also used to maintain the current loss (loss of time) on open positions that become incurred losses when to close the position at the current time.
If the customer is not enough money for current loss occurs so-called margin call, signaling that you need to update your account. Otherwise, the position is closed automatically online broker, and the client is the real loss. Current loss can be caused by unintended movement rate in the direction opposite to the open position. For example, you open a long position on the dollar quotation in USD / JPY, as the US dollar began to fall in price. This does not mean that you will suffer losses, because at a certain time course can be developed, and the US dollar will rise in price again. But if at some point since the fall of the dollar against the yen amount in your account will not be sufficient to sustain current losses, your position will be automatically closed and you incur real losses.
So under no circumstances happens margin call?
The amount in the account is divided into a damage deposit and a free part of the bill. The amount of the security deposit depends on the amount of leverage provided by the dealing company (discussed in the previous chapter), the type of items, works with a trader and the amount of such items. In the case of leverage 1:50, and a long position USD / JPY, open one mini lot ($ 10 000) the amount of the security deposit is equal to 10,000 / 50 = $ 200. If our account had 1000 dollars, then 200 of them are frozen, and 800 are at our disposal.
Since the opening start position calculated current profits or losses after the yen the dollar is constantly changing. Imagine that the current losses amounted to $ 800, ie, It came a moment that if we close the position, then suffered losses of $ 800. But the position is still open, and the course can turn in the opposite direction, bringing us a profit. We still believe that the opening of the long position was the right decision. But dealing company realizes that if the losses exceed the current size of our account, then pay extra for damages she would have to "own pocket", and it is naturally not go. Since the exchange rates on the Forex can change rapidly, it is difficult to fix the time when your current losses amount to the exact amount in your account. Dealing company reinsured in this regard, so as soon as your current losses cover a certain part of your security deposit, comes margin call, and all your open positions are automatically closed. Your account can only untouched part of the security deposit, which is converted to the free part of the bill. Every online broker its own rules regarding the size of the current losses, leading to a margin call. The figure shows an example where 30% of the security deposit is the threshold value. This means that upon occurrence of margin call, your account is only 70% of the security deposit. In our example, a long position on the dollar upon the occurrence of margin call on our account will be 0.7 * 200 = $ 140. This amount is not even enough to open another position, so you have to pay extra money to the account.
What swings should happen to come margin call? Suppose that the rate of the US dollar against the Japanese Yen in the USD / JPY quotation at the opening of the long position was 104.75 / 85. Those. we bought dollars at 104.85 yen to the dollar. Position closes reverse the transaction, ie selling dollars for yen and restated profit / loss into USD. Assuming a constant size of the spread (10 points), and we are interested in such quotation USD / JPY X / (X + 10), at which a margin call.Since we opened one mini lot position (in the amount of US $ 10 000), $ 200 security deposit is on, up $ 800 free part of the bill, we have the following equation:
10,000 * (104.85 - X) / (X + 10) = 800 + 0.3 * 200
How do we get that X is equal to 95.76. That is the quote, at which a margin call, to be USD / JPY 95.76 / 86. We see that the rate should fall to about 900 items that occurred margin call. In practice, for such a big change of course must pass a lot of time, that it is unlikely that we will get margin call.
What would happen if, instead of a mini lot, we have opened a position just four (in the amount of 40 000 US dollars)? Then a security deposit up to $ 800, available funds in the account would remain $ 200, and to our equation takes the form:
4 * 10 000 * (104.85 - X) / (X + 10) = 200 + 0.3 * 800
In this equation, X would be equal to 103.6. That is the quote, at which a margin call, would be 103.60 / 70. We see that in this case, fluctuation in just over 100 points would lead to a margin call. It should be noted that the fluctuation of 100 points during the trading day - is common in Forex.This example shows that the greater the amount of your open positions and fewer funds remain in the free part of your score, the more likely that you will get a margin call. Take this with a great deal of seriousness!
From the above it can be a view that, in order to avoid a margin call must constantly keep track of all open positions and close them in advance to minimize the losses if the rate of change in an unfavorable direction. In order to rid the Internet terydera the need for continuous monitoring of quotations, introduced the term limit order (limit order). With it, you can still open a position at the specified threshold for current loss (stoporder, stop loss) and operating margin (goal, target, take-profit). As soon as the current profit or loss exceeds a threshold, the position will be closed automatically. In contrast to the market order (market order), which is a request to open or close a position at current market price, limit orders to limit your losses, as well as your expected profit. On these terms will be discussed in more detail in the University of Forex.
So, as the Internet trader, you have to be afraid of fire as a margin call. After his attack you can simply ruin. Therefore, in every possible way to avoid situations where a large portion of your account is frozen under a security deposit and make sure that the free part of your account always had enough money. Do not try to open a position on all available in the free cash account and use limit orders to limit potential losses and the expected profit!
If the customer is not enough money for current loss occurs so-called margin call, signaling that you need to update your account. Otherwise, the position is closed automatically online broker, and the client is the real loss. Current loss can be caused by unintended movement rate in the direction opposite to the open position. For example, you open a long position on the dollar quotation in USD / JPY, as the US dollar began to fall in price. This does not mean that you will suffer losses, because at a certain time course can be developed, and the US dollar will rise in price again. But if at some point since the fall of the dollar against the yen amount in your account will not be sufficient to sustain current losses, your position will be automatically closed and you incur real losses.
So under no circumstances happens margin call?
The amount in the account is divided into a damage deposit and a free part of the bill. The amount of the security deposit depends on the amount of leverage provided by the dealing company (discussed in the previous chapter), the type of items, works with a trader and the amount of such items. In the case of leverage 1:50, and a long position USD / JPY, open one mini lot ($ 10 000) the amount of the security deposit is equal to 10,000 / 50 = $ 200. If our account had 1000 dollars, then 200 of them are frozen, and 800 are at our disposal.
Since the opening start position calculated current profits or losses after the yen the dollar is constantly changing. Imagine that the current losses amounted to $ 800, ie, It came a moment that if we close the position, then suffered losses of $ 800. But the position is still open, and the course can turn in the opposite direction, bringing us a profit. We still believe that the opening of the long position was the right decision. But dealing company realizes that if the losses exceed the current size of our account, then pay extra for damages she would have to "own pocket", and it is naturally not go. Since the exchange rates on the Forex can change rapidly, it is difficult to fix the time when your current losses amount to the exact amount in your account. Dealing company reinsured in this regard, so as soon as your current losses cover a certain part of your security deposit, comes margin call, and all your open positions are automatically closed. Your account can only untouched part of the security deposit, which is converted to the free part of the bill. Every online broker its own rules regarding the size of the current losses, leading to a margin call. The figure shows an example where 30% of the security deposit is the threshold value. This means that upon occurrence of margin call, your account is only 70% of the security deposit. In our example, a long position on the dollar upon the occurrence of margin call on our account will be 0.7 * 200 = $ 140. This amount is not even enough to open another position, so you have to pay extra money to the account.
What swings should happen to come margin call? Suppose that the rate of the US dollar against the Japanese Yen in the USD / JPY quotation at the opening of the long position was 104.75 / 85. Those. we bought dollars at 104.85 yen to the dollar. Position closes reverse the transaction, ie selling dollars for yen and restated profit / loss into USD. Assuming a constant size of the spread (10 points), and we are interested in such quotation USD / JPY X / (X + 10), at which a margin call.Since we opened one mini lot position (in the amount of US $ 10 000), $ 200 security deposit is on, up $ 800 free part of the bill, we have the following equation:
10,000 * (104.85 - X) / (X + 10) = 800 + 0.3 * 200
How do we get that X is equal to 95.76. That is the quote, at which a margin call, to be USD / JPY 95.76 / 86. We see that the rate should fall to about 900 items that occurred margin call. In practice, for such a big change of course must pass a lot of time, that it is unlikely that we will get margin call.
What would happen if, instead of a mini lot, we have opened a position just four (in the amount of 40 000 US dollars)? Then a security deposit up to $ 800, available funds in the account would remain $ 200, and to our equation takes the form:
4 * 10 000 * (104.85 - X) / (X + 10) = 200 + 0.3 * 800
In this equation, X would be equal to 103.6. That is the quote, at which a margin call, would be 103.60 / 70. We see that in this case, fluctuation in just over 100 points would lead to a margin call. It should be noted that the fluctuation of 100 points during the trading day - is common in Forex.This example shows that the greater the amount of your open positions and fewer funds remain in the free part of your score, the more likely that you will get a margin call. Take this with a great deal of seriousness!
From the above it can be a view that, in order to avoid a margin call must constantly keep track of all open positions and close them in advance to minimize the losses if the rate of change in an unfavorable direction. In order to rid the Internet terydera the need for continuous monitoring of quotations, introduced the term limit order (limit order). With it, you can still open a position at the specified threshold for current loss (stoporder, stop loss) and operating margin (goal, target, take-profit). As soon as the current profit or loss exceeds a threshold, the position will be closed automatically. In contrast to the market order (market order), which is a request to open or close a position at current market price, limit orders to limit your losses, as well as your expected profit. On these terms will be discussed in more detail in the University of Forex.
So, as the Internet trader, you have to be afraid of fire as a margin call. After his attack you can simply ruin. Therefore, in every possible way to avoid situations where a large portion of your account is frozen under a security deposit and make sure that the free part of your account always had enough money. Do not try to open a position on all available in the free cash account and use limit orders to limit potential losses and the expected profit!
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