CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the High risk of losing your money.

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What is Margin Trading?

Margin trading gives you the ability to enter into positions larger than your account balance. With a little bit of cash, you can open a much bigger trade in the forex market. And then with just a small change in price moving in your favor, you have the possibility of ending up with massively huge profits. Similarly, it makes losses greater than they would have been if the trade had been on a strict cash-only basis.

What is Leverage Trading?

Leverage trading in forex is expressed in ratio (ex: 1:50) and allows traders to trade higher volumes without having to put up the required collateral in its entirety. In other words, leverage allows traders to magnify their positions, hitherto impossible with the original capital.

How to Calculate Margin Requirements?

There are three commonly used formulas for margin calculation:
For currency pairs: Required margin = No. of lots × Units traded (Contract size in micro-lots) × Margin percentage ÷ Leverage
For CFDs: Required margin = No. of lots × Units traded (Contract size in micro-lots) × Market price × Margin percentage
Let's suppose we are buying EUR/USD to explain the margin calculation method; the cotract size is 100,000 units, the margin percentage is 100%, the leverage is 100:1 and the bid price is 1.2788. Margin required to buy 1 lot of EURUSD = 1 × 100,000 × 100% ÷ 100 = 1000 EUR.As your trading account is denomitated in USD, you may want to convert the EUR value into US dollars. And so 1000€ × 1.12788 = 1127.88 USD.
Then let's assume we are buying Gold to depict the required margin calculation for commodities.
Contract size for XAUUSD is 100; the margin percentage is set on 1%, we are trading with 100:1 leverage and the price of Gold is now 1304.25.
Required margin for buying 1 lot of XAUUSD would be: 1 × 100 × 1304.25 × 1% = 1304.25 (expressed in the margin currency). The margin currency for Gold is always USD; so the margin occupied by this order would be 1304.25 USD.
* The margin calculation method fir CFDs ignores leverage settings
* For currency pairs please use the proper margin calculation method; for precious metals, indexes, energies and other instruments please use the CFD calculation method.

Types of Leverage Ratios

The initial margin required by each broker can vary, depending on the size of the trade. If an investor buys $100,000 worth of GBP/USD, they might be required to hold $1,000 in the account as margin. In other words, the margin requirement would be 1% or ($1,000 / $100,000).

The leverage ratio shows how much the trade size is magnified as a result of the margin held by the broker. Using the initial margin example above, the leverage ratio for the trade would equal 100:1 ($100,000 / $1,000). In other words, for a $1,000 deposit, an investor can trade $100,000 in a particular currency pair

The Risk of Leverage in Forex Trading

With leverage of 100:1, you only need to have €1,000 in margin to take on a €100,000 position, with leverage of 500:1, the required margin is only €200. Note that some brokers offer leverage higher than 500:1, but most professional traders will not use leverage higher than 10:1, as it greatly increases the risk of loss, especially if you have a small account that cannot withstand unrealised losses.


LEVERAGE MAY BE DANGEROUS!


A common mistake beginning forex traders make is to use leverage without taking into account the risk in relation to the amount of money available in their trading account. Leverage can wipe out a trading account very quickly if it is not handled properly.


For example, if a trader has a $1,000 trading account and uses 100:1 leverage, each 1-pip movement is worth $10. If his stop is set 10 pips away from the entry point and it is hit, the trader loses $100, or 10% of his trading account. A reasonable trader generally will not risk more than 3% of his account on a position if he follows strict money management rules.

What is Margin Level?

The Margin Level is the percentage (%) value based on the amount of Equity versus Used Margin. Margin Level allows you to know how much of your funds are available for new trades. The higher the Margin Level, the more Free Margin you have available to trade. The lower the Margin Level, the less Free Margin available to trade, which could result in something very bad…like a Margin Call or a Stop Out.

Margin Call and Stop Out levels

Stop Out is a minimal allowed level of margin at which the trading software will start to close Client's open positions one by one in order to prevent further losses that lead to negative balance (below 0 USD).


Margin percentage = Equity ÷ Margin consumed by order


Clients can view the Margin Percentage for each symbol clicking the details of this symbol. When, at the time of trading, your margin level for a certain instrument drops below the minimal allowed level of margin percentage, a Stop Out will occur and your position will be automatically closed.


* When the position is locked, Stop Out will take effect when your Equity ≤ 0

* You can check the margin percentage for various order types in details

Different leverage types supported

  • Leverage type
    Conditions
    • 1:10
    • 1:25
    • 1:50
    • 1:100
    Clients may adjust their leverage according to their needs and skills
    • 1:200
    • 1:300
    • 1:400
    • Account equity shall not exceed $20,000 and total size for open orders should not exceed 30 lots
    • Account equity shall not exceed $10,000 and total size for open orders should not exceed 20 lots
    • Account equity shall not exceed $40,000 and total size for open orders should not exceed 40 lots
The most obvious risk of leverage is that it multiplies losses.
A common mistake beginning forex traders make is to use leverage without taking into account the risk in relation to the amount of money available in their trading account. Leverage can wipe out a trading account very quickly if it is not handled properly.

* Eagles Markets will automatically detect whether the account meets the required conditions. If the above conditions are not satisfied, Eagles Markets will notify the Client asking to adjust leverage. If no action is taken, Eagles Markets will automatically adjust the leverage.

* In order to ensure that Clients fully understand the risks of leverage, Eagles Markets will ask each one to complete KYC-2 verification and reach the V2 level before they can apply for leverage higher than 300:1.