Let’s now take all the margin jargon you’ve learned from the previous lessons and apply them by looking at trading scenarios with different Margin Call and Stop Out Levels.

Different retail forex brokers and CFD providers have different margin call policies. Some only operate only with Margin Calls, while others define separate Margin Call and Stop Out Levels.

In this lesson, we will go through a real-life trading scenario where you are using a broker that only operates with a Margin Call.

The broker defines its Margin Call Level at 100% and has no separate Stop Out Level.

What happens to your margin account when you’re in a trade that goes terribly wrong?

Let’s go find out!

Step 1: Deposit Funds Into Trading Account

Let’s say you have an account balance of $1,000.

Step 2: Calculate Required Margin

You want to go long EUR/USD at 1.15000 and want to open a 1 mini lot (10,000 units) position. The Margin Requirement is 2%.

How much margin (Required Margin) will you need to open the position?

Since EUR is the base currency. this mini lot is 10,000 euros, which means the position’s Notional Value is €10,000.

Since our trading account is denominated in USD, we need to convert the value of the EUR to USD to determine the Notional Value of the trade.

$1.15 = €1 

$11,500 = €10,000 

The Notional Value is $11,500.

Now we can calculate the Required Margin:

Required Margin = Notional Value x Margin Requirement

$230 = $11,500 x .02

Assuming your trading account is denominated in USD, since the Margin Requirement is 2%, the Required Margin will be $230.

Step 3: Calculate Used Margin

Aside from the trade we just entered, there aren’t any other trades open.

Since we just have a SINGLE position open, the Used Margin will be the same as Required Margin.

Step 4: Calculate Equity

Let’s assume that the price has moved slightly in your favor and your position is now trading at breakeven.

This means that your Floating P/L is $0.

Let’s calculate your Equity:

Equity = Balance + Floating Profits (or Losses)

$1,000 = $1,000 + $0

The Equity in your account is now $1,000.

Step 5: Calculate Free Margin

Now that we know the Equity, we can now calculate the Free Margin:

Free Margin = Equity - Used Margin

$770 = $1,000 - $230

The Free Margin is $770.

Step 6: Calculate Margin Level

Now that we know the Equity, we can now calculate the Margin Level:

Margin Level = (Equity / Used Margin) x 100%

435% = ($1,000 / $230) x 100%

The Margin Level is 435%.