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How is trading margin calculated?

16/10/2025 06:59:47

What is trading margin?
Margin refers to the minimum amount of funds that a trader must deposit in their account to open and maintain a trading position.
It acts as a form of collateral, ensuring that the trader has enough funds to cover potential losses during market fluctuations.

 

How is margin calculated?
The margin requirement depends on the product type, contract size, market price, and leverage ratio.
The general formula is:
Margin = Number of lots × Market price × Contract size ÷ Leverage
Where:
  • Number of lots: The number of contracts you are trading. One lot represents a fixed trading unit.
  • Market price: The current market price of the instrument.
  • Contract size: The amount of the underlying asset represented by one lot (varies by product).
  • Leverage: The multiple that magnifies your trading exposure.

⚙️ Each product type has a different contract size, which determines the multiplier in the calculation:

  • Forex: 1 lot = 100,000 units of the base currency
  • Gold: 1 lot = 100 ounces
  • Crude Oil (UKOil): 1 lot = 1,000 barrels
  • Indices (e.g. HK50): Calculated based on index points and currency value
  • Cryptocurrency: Depends on contract specification (e.g. 1 lot = 100 XRP units)
 
Example calculations
  1. Forex Example: EUR/USD, leverage 1:500, market price 1.03291 Calculation: 1 × 1.03291 × 100,000 ÷ 500 = $206.58
  2. Commodities Example: UKOil, leverage 1:200, contract size 1,000, price $97 Calculation: 1 × 1,000 × 97 ÷ 200 = $485
  3. Gold (XAU/USD) Leverage 1:500, market price $1,786 Calculation: 1,786 × 100 ÷ 500 = $357.20
  4. Indices (CFDs) Example: HK50 index, index value 18,900 (HKD), USD/HKD = 7.79111, leverage 1:100 Calculation: 18,900 ÷ 100 ÷ 7.79111 = $24.26
  5. Cryptocurrency Example: XRP/USD, price $0.34820, contract size 100, leverage 1:10 Calculation: 0.34820 × 100 ÷ 10 = $3.48

 

Margin ratio
The margin ratio is the inverse of leverage.
For example:
  • 1:500 leverage → margin ratio = 0.2%
  • 1:100 leverage → margin ratio = 1%

 

Notes
  • Margin requirements fluctuate with market prices in real time.
  • If your account margin level falls below the maintenance requirement, automatic liquidation may occur to prevent further losses.
  • DecodeFX provides flexible leverage and advanced risk management tools to help traders operate safely and efficiently.