# Margin Call Formula

**Free Margin and Used Margin Calculation Formula**

Calculating the Usable Margin (or Free Margin) that will be available after placing a trade can be done by using some simple arithmetic.

First of all, in a brand new account the Free Margin is equal to the entire account balance. If a brand new account balance is $1000, the deposit currency is USD and the broker has a minimum 1% margin requirement and the trader wants to execute a 0.3 Lot trade (assuming USD is the base currency, if it isn't then the calculations are a bit more complicated), then the used margin after placing the trade can be computed by multiplying the trade size by the margin requirement (0.3 lots or $30,000 x 1% = $300).

However our trade actually cost us more then $300 - because of the spread. Let's say that we are trading a pair where the spread is only 1 pip. Then our 30K contract would cost us an additional $30,000 * 0.0001 = $3. For a more expensive pair, with e.g. a 3 pip spread the 0.3 Lot contract would cost $9. We need to take this amount into account when calculating the net margin, so we take the original $700 gross usable margin and subtract the spread which leaves us with $691 net usable margin: $700 - $9 = $691 (or $697 for the 1 pip spread example).

**Here's the used margin calculation formula**

**For the below examples we will assume that:**

Your account deposit currency is USD.

The standard lot size is 100,000 units of currency.

Leverage is 200 (i.e. 200:1)

1. **If trading a USDxxx pair:**

Margin = StandardLot * LotSize / Leverage

Example (trading 0.1 lots of USDJPY):

Margin = 100,000 * 0.1 / 200 = 50 USD set aside as margin (used margin).

2. **If trading a xxxUSD pair:**

Margin = StandardLot * quote * LotSize / Leverage

Example (trading 0.5 lots of GBPUSD @ 1.3982):

Margin = 100,000 * 1.3982 * 0.5 / 200 = 349.55 USD.

3. **If trading a cross pair (like GBPJPY):**

This is basically the same as the xxxUSD example above. Once again we are buying the xxx currency, except this time we are paying for it in some other currency, not USD. But the amount we need to set aside as margin is the same as if we bought the xxxUSD pair. The only complication we might have is if the xxxUSD quote is not xxxUSD but actually USDxxx. This would be the case with a pair like CHFJPY, since the USD pair is expressed as USDCHF, not CHFUSD. In this case we will need to use (1 / USDxxx quote) below, instead of (xxxUSD quote).

Margin = StandardLot * (xxxUSD quote) * LotSize / Leverage

Example (trading 0.2 lots of GBPJPY with GBPUSD @ 1.3982):

Margin = 100,000 * 1.3982 * 0.2 / 200 = 139.82 USD.

**Let's see if you can calculate your used margin for the following trade setup:**

Your account deposit currency is USD.

The standard lot size is 10,000 units of currency (mini account).

Leverage is 100 (i.e. 100:1).

What will be your used margin if you open a 0.3 Lot trade of EUR/USD @ 1.2824? What about 0.3 lots of EUR/CHF @ 1.4755?

You can see the answers at the bottom of the article.

**How Many Pips Can the Market Move Against Me Before a Margin Call Takes Place?**

In order to figure out how many pips the market can move against your position to bring the net usable margin to zero, take the net usable margin and divide it by the cost per pip:

$691 / $3 = 230 pips (or $697 / $3 = 232 pips for the 1 pip spread example - as you can see the spread is not a major factor in calculating the available margin).

The above assumes that you only have one position open at any given time in your account. If you have two or more positions open then the price movements in each position contribute to the increase or decrease of your Used and Free Margin and it becomes real hard to calculate the Free/Used Margin precisely.

This margin calculation formula also assumes that the amount of Margin required to Open a position is the same as the amount of margin required to Maintain (keep open) the position. This will often not be the case as various brokers have different requirements for this amount, typically the margin required to maintain a position is lower than the amount required to Open a position (e.g. by 50%, which means that in the above example you would have to maintain a used margin of ($1000-$691) * 50% = $154, in other words the position could move ($1000-$154) / $3 = 282 pips against you before the margin call.

**Don't overtrade!**

The above is just an EXAMPLE, given here in order to illustrate the margin calculations. The fact that the market can move 230 or 282 pips against you before you are margined out DOES NOT MEAN THAT THIS IS THE WAY TO TRADE!

Opening a 0.3 lot position on a $1000 account could be risky, because if you want to risk no more than 5% of your account on any given trade (which is $50 in this case), you can only withstand a 16-17 pip move against you before you threshold is reached:

$3 * 16 = $48; or $3 * 17 = $51

This could be a little too thin (although some short-term traders a.k.a. "scalpers") trade with stop losses this small. A more suitable stop loss of e.g. 30 pips would require you to decrease your number of lots to 0.17, which would bring the cost of one-pip move down to $1.70. Then:

$1.70 * 30 = $51 which is approximately %5 of your account equity.

To summarize: If you want to trade more lots then you won't be able to withstand larger market swings and vice versa - if you want to trade with bigger Stop Loss then you need to decrease the number of lots you trade.

answers: For the EUR/USD question the margin is $384.72 USD. For the EUR/CHF - same.

Hi

I think the answer is not right it is 10000*1.2824*0.3/100 = 38.472

Omar