Margin is the amount of money on the account, which is blocked at the opening of any position (trade order). It acts as a kind of collateral for the transaction(s).
It is calculated according to the following formula:
Margin = (opening volume of the transaction * 100 000 base currency * Opening price) / leverage
Note: The opening price is used for calculations if the deposit currency does not match the base currency in the currency pair.
Let's look at examples:
Example 1.
Deposit currency USD; leverage 1:100; trade volume 0.5 lots; GBP/USD: GBP/USD (bid1.38700/ask 1.38730).
Buy (ask):
Margin = (0.5 * 100,000 * 1.38730) / 100 = 693.65 USD
Sell (bid):
Margin = (0.5 * 100,000 * 1.38700) / 100 = 693.5 USD
Example 2.
Deposit currency USD; leverage 1:100; volume 0.3 lots; USD/CHF: USD/CHF exchange rate (bid 0.93880/ask 0.93890). The opening price will not be used in the calculations, as the deposit currency matches with the base currency of the currency pair.
Buy (ask):
Margin = 0.3 * 100 000 / 100 = 300 USD
Sell (bid):
Margin = 0.3 * 100 000 / 100 = 300 USD