Trading mechanics
Margin
The portion of account equity set aside to hold an open position. It is a deposit against the position rather than a cost, and it is returned to free margin when the position closes.
GFN’s figure
At GFN's up to 1:50, a $100,000 notional position requires $2,000 of margin. Requirements vary by instrument, and where there is not enough margin the platform may prevent the order from opening.
In detail
Margin,explained
Margin requirement is notional size divided by leverage, so it falls as leverage rises. On a simulated account it works identically, and it is what stops an account opening a position larger than its equity can support.
Margin and risk are different numbers. A position can use a small fraction of margin and still carry a loss large enough to breach a daily limit.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Free margin
Equity minus the margin currently committed to open positions. It is what remains available to open new trades or to absorb floating losses on the ones already running.
Leverage
The ratio between the notional size of a position and the margin required to hold it. At 1:50, $2,000 of margin supports a $100,000 position - it changes what you can open, not what you may lose.
Margin call
A warning issued when equity falls to a set percentage of the margin required for open positions. It signals that the account is close to being unable to support the trades it holds.
Stop-out
The automatic closing of positions when equity falls below the level needed to maintain them. On a prop account the phrase is also used loosely for hitting the maximum drawdown floor.
Position size
How many lots a trade is placed in. It is calculated from the dollar amount being risked and the stop distance, not chosen first - which is the reverse of how most traders approach it.
Also governed by /rules/margin-and-lot-size
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