Silver Leverage & Margin Trading Explanation and Example

Margin required : It is the amount of money your silver broker requires from you to open a position. It is expressed in percents.

Equity : It is the total amount of capital you have in your account.

Used margin : amount of money in your trading account which has already been used up when buying a silver trading contract, this contract is one that is displayed in open trade positions. As a trader you can not use this amount of money after opening a trade because you've already used it & it isn't available to you.

In other words, because your silver broker has opened up a position for you using the capital you have borrowed, you must maintain this usable margin for your account as a security to allow you to continue using this silver leverage he has given you.

Free margin : amount in your account which you can use to open new trade positions. This is amount of money in your trading account that has not yet been silver trading leveraged because you've not yet opened a trade with this money - this is also very important for you as as investor because it enables you to continue holding your open trades as will be explained below.

However, if you over use xagusd leverage, this free margin will drop below a certain percent at which your xagusd broker will have to close all your positions automatically, leaving you with a big loss. Silver broker at this point will automatically close-out all your open trades because if your open trades are left open then your broker would lose money that you would have 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 percent of your xagusd trading account, in fact 2 percent is recommended.

Difference Between XAGUSD Trading Leverage Set by Broker & Used Silver Trading Leverage

If the set silver trading leverage ratio is 100:1, it means that you can borrow up to 100 dollars for every dollar which you have in your silver trading account but you do not have to borrow all the 100 dollars for every dollar you've, but you can decide to borrow 50:1 or 20:1. In this case even though the leverage option set 100:1 your used silver leverage will be the 50:1 or 20:1 that you've borrowed to make a trade.

Example:

You have 1000 dollars (Equity)

Set 100:1

Silver Leverage Used = Amount used /Equity

If you buy silver lots equal to 100,000 dollars you will have used

= 100,000/1000

= 100:1

If you buy xagusd trading lots equal to 50,000 dollars that as a trader you will have used

= 50,000/1000

= 50:1

If you buy xagusd trading lots equal to 20,000 dollars that as a trader you'll have used

= 20,000/1000

= 20:1

In these three 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 silver lots traded.

So Why not Just Choose 10:1 option as the Maximum Silver Leverage? Because to keep within proper risk management rules it's even recommended that traders use less than this?

This question may seem straight forward but it is not, because when you trade you use borrowed money known A.K.A. Silver Leverage. When you borrow capital from anyone or a bank you must maintain a security or collateral to acquire a loan, even if the security is based on monthly deduction from your salary, the same thing with Silver Trading.

In silver trading the security is known as margin. This is capital you deposit with your broker.

This is calculated in realtime as you trade. To keep your borrowed money you must maintain what is known as the required capital (your deposit).

Now if Your XAGUSD Trading Leverage is 100:1

When trading if you have $1,000 & use option 100:1 & buy 1 standard lot for $100,000 your margin on this transaction is the $1000 dollars in your account, this is the money that you'll lose if your open trade goes against you the other $99,000 that is borrowed, they will close the open silver trades automatically once your $1,000 has been taken by xagusd trading market.

But this is if your silver broker has set 0% Silver Margin Requirement before closing your xagusd trades automatically.

For 20% requirement before closing your xagusd trades automatically, then your trades will be closed out once your trading account balance gets to $200

For 50% requirement of this level before closing your xagusd trades automatically, then your trade transactions will be closed out once your account balance gets to $500

If they set 100% requirement of this level before closing out your open trade positions automatically, then your trade will be closed once your trade account balance gets to $1,000: Meaning the trade will close out as soon as you execute it because even if as a trader you pay 1 pip spread your trading account balance will get to $990 and needed percentage is 100% i.e. 1,000 dollars, therefore your orders will immediately get closed.

Most brokers do not set 100% requirement, but there are those who set 100% aren't suitable for you at all, select those set 50% or 20% margin requirements, in fact, those who set at 20% are some of the best because the likely hood they closeout your trade is reduced as shown in examples above.

To know about this level which is calculated by your trading platform automatically - The MetaTrader 4 Silver Trading Platform will display this as "Silver Margin Requirement", This will be displayed as a percent higher the percent the less likely your trades are to get closed.

For Example if

Using 100:1

If silver leverage is 100:1 and you transact silver lots equal to $10,000

$10,000 dollars divide by 100:1, used capital is $100

Calculation:

= Capital Used * Percentage(100)

= $1,000/$100 * Percent(100)

Silver Margin Requirement = 1,000 %

Investor has 980% above required amount

Using 10:1

If silver leverage is 10:1 and you transact silver lots equal to $10,000

$10,000 dollars divide by 10:1, used capital is $1000

Calculation:

= Capital Used * Percentage(100)

= $1,000/$1000 * Percent(100)

Silver Trading Margin Requirement = 100 %

Investor has 80% above required amount

Because when a trader has a higher silver leverage means that they have more percentage above what is required(A.K.A. More "Free Silver Trading Margin") their open silver trading transactions are less likely to get closed. This is the reason why traders will choose option 100:1 for their account but according to their risk management trading rules, they will not trade above 5:1.

These Areas are Shown on The Software Image Below as an Example:

MT4 Silver Trading Platform