Margin & Leverage is used in most of the financial markets, but in the Forex market the leverage on offer is amongst the highest available. The leverage level in the Forex market can vary from 1:1, 1:50, 1:100 and higher. Your broker sets the leverage level.

To start trading on the Forex market you will need to create an trading account. The minimum top up that you need to deposit on this account depends on the margin percentage agreed between you and the broker.

100,000 units of currency is the standard of trading. The margin for this level of trading would be 1-2%. When the margin is 1% the trader will need to top up his account with $1,000 to trade positions of $100,000. The leverage in this situation is 1:100, because 1 unit controls 100 units.

The fluctuations in the Forex Markets are lower than the fluctuations on the Equity Markets so the leverages are always higher. The leverage on the Forex Market gives you the chance to control currencies 100 higher than the initial investment.

Leverage can also have a negative effect, if the underlying currency in your trades moves against you, the leverage will increase your loses.

When CMX Markets notices your margin drops below the required levels, we might initiate a “margin call” against you. In this case we will either ask you to top-up you account with more funds or close out some or all or you positions to limit the loss to both yourself and us.

Trading EUR/USD

What Does BUY 1 Lot of EUR/USD Mean?

1 lot of EUR/USD means that a client has bought 1 standard contract of 100,000 Euros and sold the equivalent of this contract in US Dollars.

For example when the rate is EUR/USD = 1.2500, a client would need to exchange $125,000.00 in order to buy 1 standard contract of € 100,000.00. The margin calculation is based on the Base Currency, therefore to buy/sell 1 lot of EUR/USD you have to have Free Margin of the equivalent in base currency of the quoted currency.

Things to consider (Leverage is 1:100, Margin is 1% & EUR/USD rate is 1.2500), 1 lot of standard contract of EUR/USD = € 100,000.00 Euros. In order to find the equivalent is Dollars, we have to multiply the Contract size in dollars. Therefore 1 lot of EUR/USD = 125,000.00.

Further explanation:

Things to consider (Leverage is 1:100, Margin is 1% & EUR/USD rate is 1.2500), 1 lot of standard contract of EUR/USD = € 100,000.00 Euros. In order to find the equivalent is Dollars, we have to multiply the Contract size in dollars. Therefore 1 lot of EUR/USD = 125,000.00.

Margin Calculation

As Margin is 1% of the Base Currency. 1/100 x Dollar Margin requirement, 0.01 * $ 125,000.00 = $1250.00. The client will need to have a minimum of $1, 2500.00 to be able to sell/buy this position.

Another example on GBP/USD

Client wants to open 4 mini contacts (40,000 base currency) = 0.4 Lots. At the rate of GBP/USD = 1.5000 (£ 40,000.00 = $60,000.00). Therefore after margin calculation, 1/100 * $60,000 = $600. Therefore client have to have a minimum of $600 in order to be able to buy/sell this position.

The type of trader you are will be greatly influenced by your use of Leverage and Margins. Profitable trading need a well thought through use of trading strategy, trading stops and money management.

The choice of required leverage varies from 1:1 up to 1:300 at CMX Markets Looking to change you leverage level? Just submit your request at: support@cmxmarkets.com

Be cautious with increasing or decreasing your leverage level. It can work in your favor if you use it wisely. If not it can cause you a lot of loss in profits.