# [XMTrading: For FX Beginners] What is the required margin? Thorough explanation of calculation method and loss cut

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Margin in Forex is the funds required in proportion to the transaction amount to buy and sell currency pairs. The less this fund is, the faster it will go bankrupt. In Forex, margin is used as collateral for trading, so if the margin is insufficient, you will not be able to open new positions.

## What is the required margin in XM?

One of the margins is the margin requirement, which is the minimum amount of money required for trading Forex. In Forex trading, you can trade a much larger amount than the money actually deposited in your account by applying leverage to a small amount of margin.

### Margin and Leverage

The biggest advantage of Forex is that you can trade large amounts with a small amount of money. This is because the leverage is effective and is closely related to the margin. For example, if the dollar/yen exchange rate is 1 dollar = 130 yen, a margin of 1,300,000 yen is required to trade for 10,000 dollars.

However, by using leverage, you can multiply the amount of money you have on hand. XM allows trading with leverage of 100 times and up to 888 times.

When leverage is 100 times: margin = 1,300,000 yen ÷ 100 times = 13,000 yen

When leverage is 888 times: Margin = 1,300,000 yen ÷ 888 times ≒ 1,464 yen

By using high leverage, you can see that you can trade a large amount with a small amount of capital.

### margin call

If you want to know the required margin, you should also know about margin calls. A margin call is like a stop-loss notice that informs you of a drop in the margin maintenance rate. This is an alert that informs you of a decline in the margin maintenance rate, so it is like a stop-loss notice. In other words, if the negative value increases from here, there is a risk of forced liquidation. If the margin call is ignored and the margin falls to the stop loss standard, the loss will be cut and the unrealized loss of the position will be forcibly confirmed.

### loss cut

What you need to remember at the same time as margin call is stop-loss cut. If the negative value continues to increase after the margin call is activated, the stop-loss cut will be activated. Since the stop-loss is forcibly settled, the user has no control over it. The system is called margin call when the margin maintenance rate is 50%, and loss cut when the margin maintenance rate is 20%. If you are interested in loss cuts, please take a look at the article below. We have tools available to help you easily calculate your margin requirements.

### zero cut

By the way, there are cases where the balance suddenly becomes negative and the balance in the account becomes less than zero, that is, negative, but isn’t this a possibility of incurring debt? You may think so. However, XM uses a zero cut, and the XM broker compensates for the negative amount. The following article introduces zero cuts.

## How to calculate margin requirements

The details of the required margin calculation method and formula are as follows. The required margin is standard account, micro account, there are bonuses and campaigns, and the bonus is added as margin and can be used. This is called the cushion function, and the information and list are explained in the article below. The limit to loss cut is higher, and it is advantageous for CFD trading.

Required Margin = Price x Number of Lots ÷ Leverage

Let me introduce a calculation example. I also included the units. Maximum leverage can be up to 1000x. Please note that the leverage offered by investment products may vary. Please see the latest management site. Let’s take a look at foreign exchange, which is a popular stock. In the case of foreign exchange, swap points occur here.

Stock: USDJPY (dollar yen) Price: 127.12 yen (as of May 28, 2022)

Number of lots: 1 (100,000 currency)

Leverage: 888x Required margin = 127.12 yen × 100,000 ÷ 888 = 14,315 yen

## Margin maintenance rate and loss cut

The margin maintenance rate and the loss cut level have the same meaning, and indicate the ratio of the account balance to the account balance. When the margin maintenance rate is 20%, if the profit or loss of the position being held becomes negative and falls below the loss cut level of 20%, the loss will be forcibly cut.

### By base currency

The required margin depends on the price, but XM allows you to specify not only Japanese yen, but also dollars and euros. By comparing, the calculation method and pips calculation will also change. It is also explained on the official website. Therefore, when ordering, please use the calculation tool on the official website.

### Leverage depends on the product

The key here is leverage. Please be very careful as the prices vary depending on the stock index, energy, gold, silver, Bitcoin, stocks, commodities, etc. It could be 10x, 400x, or 500x. As explained above, there are additional campaigns and bonuses for margin deposits.

## How to calculate the margin maintenance rate

There are three types of margin: effective margin, required margin, and surplus margin.

Margin Maintenance Rate [%] = (Effective Margin ÷ Required Margin) x 100

Let’s take a look at how equity and required margin are calculated.

Effective Margin = Total Assets + Valuation Gain/Loss – Withdrawal Request Amount

Required Margin = Execution Rate X Transaction Currency Unit X Quantity ÷ Leverage

Let me show you an example of equity calculation.

Total assets: 100,000 yen
Valuation profit/loss: -10,000 yen (unrealized loss)
Withdrawal request money: 0 yen

Effective margin = 100,000 yen – 10,000 yen – 0 yen = 90,000 yen

Let me show you an example of margin requirement calculation.

Contract rate: 125 yen
Trading currency unit: 100,000 currency (1000 currency for micro account)
Quantity: 1 lot
Leverage: up to 888 times (zero account up to 500 times）

Required margin = 125 yen X 100,000 currency X 1 lot ÷ 888 ≒ 14,077 yen

Let me show you an example of calculating the margin maintenance rate.

Effective margin: 90,000 yen
Margin requirement: 14,077 yen

Margin maintenance rate [%] = (90,000 yen ÷ 14,077 yen) x 100 ≒ 639%

## How to avoid loss cuts

By the way, everyone should avoid forced loss cuts. There is a way to avoid this.

### fund management

Aim for a margin maintenance rate of 100% or higher, and manage your transactions and funds with a margin. The ideal loss cut is around 1-2% of the total funds. The more unrealized losses increase, the less people will be able to cut their losses, so it is better to escape while the losses are still shallow.

### Add margin

There is a way to add funds if the margin maintenance rate falls below 100%. But if you endure this in vain, you will self-destruct. If you are fighting against market trends, it is better to cut your losses instead of adding funds unnecessarily.

### double-sided transaction

XM allows for both sides. Holding the same number of lots for buy and sell positions and keeping the margin maintenance rate constant will help avoid loss cuts.

### Exchange XM points for bonuses

XM has a point system called the Loyalty Program, where you can exchange your accumulated points for tradeable bonuses or cash. You can endure it by exchanging it for cash. The points are introduced in the article below.

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