Commodity Trading Leverage Examples and Margin Examples and Examples
Margin required : It's the amount of money your commodity broker requires from you to open a position. It is expressed in percentages.
Equity : It is the total amount of capital you've in your trading account.
Used margin : amount of money in your account that has already been used up when buying a commodity contract, this contract is one that is displayed in open positions. As a trader you can't use this amount of money after opening a trade order because you've already used it & it isn't available to you.
In other words, because your commodity broker has opened up a trade position for you using the capital you've borrowed, you must maintain this usable margin for your trading account as a collateral to allow you to continue using this commodity trading Leverage Example he has given you.
Free margin : amount in your account which you can use to open new trades. This is the amount of money in your account which hasn't yet been commodity Leverage Examples because you've not yet opened a trade transaction using this money - this money is also very important for you as a trader because it enables you as a trader to continue holding your open trades as explained below.
However, if you over use commodity trading Leverage Example, this free trading margin will go below a certain % at which your commodity broker will have to close all your trades automatically, leaving you with a large loss. The commodity broker at this point liquidates all your position because if your trades were to be left open they would lose the money you've borrowed from them.
This is why you should always make sure you've a lot of free margin. To do this never trade more than 5 percentage of your commodities account, in fact 2 percent is adviced.
Difference Between Commodity Leverage Examples Set by the Broker and Used Commodity Trading Leverage Example
If the set commodity trading Leverage Example is 100: 1, what it means is thatthat-as-a-trader you can borrow upto 100 dollars for every 1 dollar you have in your trading account, but you don't have to borrow all the 100 dollars for every 1 dollar you have, you can decide you want to borrow 50:1 or 20:1. In this case though the leverage option is preset at 100:1 your used commodity trading Leverage Examples will be 50:1 or 20:1 that you have borrowed to make a trade transaction.
Example:
You have 1000 dollars (Equity)
Set 100:1
Commodity Trading Leverage Example Used = Amount used /Equity
If you buy commodity lots equal to 100,000 dollars you will have used
= 100,000/1000
= 100:1
If you buy commodities lots equal to 50,000 dollars you'll have used
= 50,000/1000
= 50:1
If you buy commodities lots equal to 20,000 dollars you'll have used
= 20,000/1000
= 20:1
In these 3 cases you can see that even though the set is 100:1
The used is 100:1, 50:1, 20:1 depending on the size of commodity lots traded.
So Why not Just Choose 10:1 option as the Maximum Commodity Leverage Examples? Because to keep within the suitable risk management guidelines it is even recommended that investors use less than this?
This question may seem straight forward but it's not, because when you trade you use borrowed money known A.K.A. Commodity Trading Leverage Example. When you borrow capital from anyone or from a bank you must keep a security or collateral to acquire a loan, even if the security is based on monthly deduction from your salary, same thing with Commodities.
In commodity the security is known as margin. This is capital you deposit with your broker.
This is calculated in real-time as you trade. To keep your borrowed amount you must keep what is known-asreferred-to-as the required trading capital (your deposit).
Now if Your Commodity Trading Leverage Examples is 100:1
When trading if you have $1,000 & use leverage option 100:1 & buy 1 standard lot for $100,000 your margin on this transaction is $1000 dollars in your account, this is the money which you will lose if your open trade transaction goes against you, the other $99,000 that is borrowed, they will liquidate the open commodity trades automatically once your $1,000 has been taken by the commodities market.
But this is if your commodity broker has set 0% Commodities Trading Margin Requirement before liquidating your commodities trades automatically.
For 20 percent requirement before liquidating your commodities trades automatically, then your trades will be closed once your balance gets to $200
For 50% requirement of this level before liquidating your commodities trades automatically, then your trades will be closed once your balance gets to $500
If they set 100% requirement of this level before closing out your open trades automatically, then your trade position will be liquidated once your balance gets to $1,000: Meaning the trade will close-out as soon as you execute it because even if you as a trader you pay 1 pip spread your trade account balance will get to $990 and needed percentage is 100% i.e. 1,000 dollars, therefore your orders will immediately get liquidated.
Most brokers don't set 100% requirement, but there are those that set 100% are not appropriate for you at all, choose those set 50 percent or 20% margin requirement, in fact, those commodities brokers which set their margin requirement at 20% are some of the best because the likely-hood they close your trade position is reduced as displayed in the example above.
To know about this level which is calculated by your platform automatically - The MT4 Commodity Platform will display this as "Commodities Margin Requirement", This will be displayed as a percentage the higher the percent the less likely your trades are to get liquidated.
For Example if
Using 100:1
If commodity trading Leverage Example is 100:1 and you transact commodity lots equal to $10,000
$10,000 dollars divide by 100:1, used capital is $100
Calculation:
= Capital Used * Percent(100)
= $1,000/$100 * Percentage(100)
Commodities Trading Margin Requirement = 1,000 %
InvestorTrader has 980% above the requirement amount
Using 10:1
If commodity trading Leverage Example is 10:1 & you trade commodity lots equal to $10,000
$10,000 dollars divide by 10:1, used capital is $1000
Calculation:
= Capital Used * Percent(100)
= $1,000/$1000 * Percentage(100)
Commodities Margin Requirement = 100%
Investor has 80% above the required amount
Because when a trader has a higher commodity trading Leverage Example means that they have more percent above what is required (A.K.A. Known As More "Free Commodities Trading Margin") their open commodity transactions are less likely to get closed. This is reason why traders will choose the ratio 100:1 for their trading account but according to their money management rules, they won't trade above 5:1 leverage ratio.
These Levels are Shown on The Software Screen-Shot Below as an Examples:
MT4 Commodity Trading Platform
