<Last updated 25.04.2020>
Hi! If you are interested in Forex please read carefully the below article that helps you understand the trading account types and their details.
For the broker to be able to provide you services you have to create an account with them. This is the client’s account. Once the account is fully verified, you will be able to use the trading platform and products.
To verify your account, you are required to provide proof of identity (POI) and proof of residence (POR) and complete a quick questionnaire (Appropriateness test and Economic profile). A regulated Broker will ask for this.
Regarding the Trading Account, you have the option to open a demo account in which you can test your trading strategies and skills.
Different Brokers have different real account types. This account categorization though has a similar structure in each: Each account provides different features and benefits for the client. The more the deposit amount, the better the benefits offered, involving an account upgrade. These benefits are related to lower spreads and commissions and more free services and/or free access to VIP content.
By Login into your client’s portal, you will be able to see your trading accounts. The system is integrated with the Trading Platform. If you are using the Metatrader 4 (MT4) platform, for example, the account number will correspond to the MT4 number you use to login.
You will need to provide the account number plus the relevant server and the password you were given upon registration.
The Broker collaborates with secure payment providers to allow our clients to deposit using the most convenient method for them. When a deposit takes place the account balance is increased by the Deposit amount. A withdrawal will decrease it.
Balance – The amount of money you have in your account when there is no open position. If you deposit $10,000 this will remain unchanged until a position is taken. It is affected by closing positions (realizing Profits/Losses), deposits and withdrawals.
When there are no open positions, the Balance = Equity i.e. 10,000.
Equity – This is your account balance plus/minus your open Profit/Loss (P/L). Fluctuates based on open positions. When there is no position, open balance and equity are the same!
Assume that the investor is losing money from an open position. So Equity = Balance + Unrealized PnL
Equity = 10,000 + (-1,000) = 9000 and Balance = 10,000
When you buy a house, you often have to put a down payment and borrow the rest. The amount that you have borrowed is called leverage. The same applies to trading. If you wish to trade with a larger amount than that which you own, you set your leverage accordingly.
The broker will typically offer different ratios of leverage raging from 1:30 to 1:500. Remember that the higher the leverage the higher your losses or profits will be, essentially you are increasing risk.
Margin is the amount you are contributing to a specific trade and it is also the amount you stand to lose should the markets move against you. While leverage
is the amount borrowed, the margin is the amount put in.
Margin is also the term used for the amount of money that you need to keep in your account to sustain a position
Margin – Calculated based on leverage. Margin is the amount of money that is secured for a position or trade.
Margin and Free Margin
Example: The investor decides to open 1 lot EUR/USD. 1 lot = 100,000 EUR
(Margin is always denominated in Base currency for FX pairs.)
The Broker allowed him a leverage level of 1:200. This means that the margin requirement, or just Margin, will be just 500 EUR, or 0.5% margin requirement.
Free Margin – Is the difference between your account equity and the margin of your open positions or simply Free Margin = Equity – Margin.
Let’s assume that open position has Unr -1,000 EUR. Since Margin used is just 500 EUR, then Free Margin = 9,000 – 500 = 8,500 EUR.
Margin Level and Margin Call
Margin Level allows you to know how much of your funds are available for new trades. When Equity=Margin
It means that Margin level = 100%. If your Equity is less than Margin used, the Broker has to alert you with a Margin Call at a certain point/percentage, for example at 80%.
Margin Level – Is the ratio of equity to margin. In other words: Margin Level = Equity/Margin x 100%.
Margin level and Stop Out
Stop-Out Level –Calculated and implemented by the broker, ranges from 10% -50% of balance. It Is where deals will begin to be closed automatically because the margin level has fallen below the stop-out level.
This happens when equity decreases by increasing losses or if the client is overexposed by opening too many positions which increases their margin.
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