What exactly does “Used Margin” mean?
To comprehend what the Used Margin is, we must first understand what Required Margin is.
When you open a new position, you must set aside a certain amount of the Required Margin.
Required Margin was covered in full in the previous lesson, so if you’re not sure what it is, please read our What is Margin? page. If you open many positions at once, each position will have its own Required Margin.
The total amount of the Used Margin is calculated by adding all of the Required Margin of all open positions.
All margin that has been “locked up” and cannot be used to open new positions is referred to as “utilized margin.”
Because this margin has already been “used,” the term “Used Margin” was coined.
While Required Margin is tied to a specific transaction, Used Margin is the amount of money needed to keep ALL of your transactions open.
Example: Open a long USD/JPY and USD/CHF position
Assume you have $1,000 in your account and wish to open TWO positions:
Long USD/JPY and looking to open a position of 1 mini lot (10,000 units)
Long USD/CHF and looking to open a position of 1 mini lot (10,000 units)
Each currency pair’s margin requirement is as follows:
How much margin will you need to open each trade (“Required Margin”)?
Because the US dollar is the base currency for both currency combinations. A tiny lot is $10,000, which means that the notional value of EACH stake is $10,000.
Let’s compute the Required Margin for EACH position now.
USD/JPY Position
The USD/JPY margin requirement is 4%. Assuming your trading account is in USD, the Required Margin is $400.
USD/CHF Position
The USD/CHF Margin Requirement is 3%.
Assuming your trading account is in USD, the Required Margin is $300.
Because you have TWO trades, your trading account’s Used Margin will be $700.
Here’s an interesting diagram that shows how Used Margin relates to Required Margin and Balance.
Next Lesson: What is Equity?
