Understanding What Used Margin Is in Forex
In today’s lesson, we will be diving into another crucial concept in forex trading, “Used Margin.”
Previously, we discussed the general concept of margin and its role in leveraged trading. Now, we want to zoom in on a specific type of margin that plays a big role in your trading journey.
To properly understand Used Margin, it’s important that you first grasp the idea of Required Margin, which we covered in our previous session.
What Exactly Is Used Margin in Forex?
Used margin refers to the total amount of required margin locked up by your broker to maintain all your open positions in the market.
Each time you open a new leveraged trade, your broker sets aside a specific amount of your account balance as the required margin. If you open multiple trades, the broker reserves a margin for each of those trades. When you add up the required margin for all open positions, that total becomes your Used Margin.
Even if you have only one position open, the required margin for that single position is considered your used margin.
Example to Illustrate Used Margin
Let’s assume you open three trades, whether on the same currency pair or different pairs, and each one requires a $1,000 margin. Your Used Margin will be:
$1,000 + $1,000 + $1,000 = $3,000
If your total account balance is $5,000, then:
- Used Margin = $3,000
- Free Margin = $2,000
- It means $3,000 is locked up in your running trades, and only $2,000 is left available for new positions.
Let’s take a more detailed example to solidify this.
Real Trade Example:
You spot two good trade setups, one on EUR/USD and the other on GBP/USD, and you decide to open both using standard lot sizes (100,000 units each).
- EUR/USD Exchange Rate: 1.3000
- GBP/USD Exchange Rate: 1.2000
- Leverage for EUR/USD: 1:130
- Leverage for GBP/USD: 1:120
Calculating EUR/USD Required Margin
- Notional Value = Contract Size × Exchange Rate
- → 100,000 × 1.3000 = $130,000
- Required Margin = Notional Value ÷ Leverage
- → $130,000 ÷ 130 = $1,000
So, the required margin for EUR/USD = $1,000
Calculating GBP/USD Required Margin
- Notional Value = Contract Size × Exchange Rate
- → 100,000 × 1.2000 = $120,000
- Required Margin = Notional Value ÷ Leverage
- → $120,000 ÷ 120 = $1,000
So, the required margin for GBP/USD = $1,000
Used Margin Calculation
- EUR/USD Margin = $1,000
- GBP/USD Margin = $1,000
- Total Used Margin = $1,000 + $1,000 = $2,000
If your total trading account balance is $3,000:
- Used Margin = $2,000
- Free Margin = $1,000
It means you only have $1,000 left to open new trades or withstand any negative fluctuations in your open positions.
Final Thoughts
We understand that not everyone enjoys the math side of forex trading, but here’s the truth: Forex is a game of calculated risks. Every trade you take involves numbers, precision, and strategy.
Many traders fail not because they lack strategy but because they ignore the numbers that truly matter. Understanding concepts like used margin, required margin, and free margin helps you trade with confidence and avoid unnecessary losses.
Keep learning. Keep solving. Your journey to profitability is worth every effort.
In the next lesson, we’ll be talking about “Equity in Forex.” Don’t miss it!
