What is Used Margin?

What is Used Margin？

To understand what is used margin, it is also useful to understand what Required Margin is. Required Margin is the portion or part of margin needed to open your trade.

Used margin is the amount of your trade balance that is initially withheld when you open a spot position on margin. Unlike free margin, used margin does not count unrealized profits/losses. Recall that when ever you open more than one position each will have it's own Required Margin.

While Required Margin is tied to a SPECIFIC trade, Used Margin refers to the amount of money you needed to deposit to keep ALL your trades open. If you open many options with Required Margin and then add them up all, thevl total amount is what I'd called used margin.

So any margin that is been locked up is considered to be used, and hence it is named used margin.

Example: Open a long USD/JPY and USD/CHF position

Supposed you have deposited $1,000 in your trading account and want to open TWO positions as:

. Long USD/JPY and you want to open 1 mini lot (10,000 units) position.

. Long USD/CHF and you want to open 1 mini lot (10,000 units) position.

The Margin Requirement for each currency pair is as follows:

Currency Pair Margin Requirement

USD/JPY 4%

USD/CHF 3%

How much margin (“Required Margin”) will you need to open each position？

But USD is the base currencies for both currency pairs. And a mini lot is 10,000 dollars, which means EACH positions notional value is $10,000.

Now let's calculate the Required Margin for EACH position.

USD/JPY Position

The Margin Requirement for USD/JPY is 4%. Lets say your account is denominated in USD, the Required Margin will be $400.

Required Margin = Notional Value x Margin Requirement

$400 = $10,000 x 0.04

USD/CHF Position

The Margin Requirement for USD/CHF is 3%.

Supposed your trading account is denominated in USD, the Required Margin will be $300.

Required Margin = Notional Value x Margin Requirement

$300 = $10,000 x 0.03

Since you have TWO trades of different pairs, the Used Margin in your trading account will be $700.

Used Margin = Sum of Required Margin from ALL open positions

$700 = $400 (USD/JPY) + $300 (USD/CHF)

Below is a nice diagram showing how Used Margin relates to Required Margin and Balance.

Recap

Throughout this lesson, we havs learned about the following:

• Used Margin which is the TOTAL amount of margin currently in withheld to maintain all open positions.

• In another word , it is the SUM of all Required Margin being used.