Equity and Margin Level are among the most important indicators that help you assess the status of your account and manage risk when trading on margin.
What Is Equity and How Is It Calculated?
Equity is the actual total value of your account at the current time. It is calculated based on your account balance, any available credit or bonus, in addition to unrealized profits or losses from open positions.
Formula:
Equity = Account Balance + Credit/Bonus ± Unrealized Profits or Losses
What Is Margin Level and How Is It Calculated?
Margin Level is a percentage that shows the strength of your account compared to the used margin. It is used to determine how close you are to a margin call. The higher the margin level, the safer your account position is.
Formula:
Margin Level (%) = (Equity ÷ Used Margin) × 100
What Is Used Margin?
Used Margin is the amount reserved from your account to open and maintain your current positions.
Why Is Margin Level Important?
Margin Level helps you monitor the risk level in your account. When it drops to a certain level set by the broker, a margin call may be issued or your positions may be closed automatically.
Example:
If you have:
- Account balance: $5,000
- Unrealized loss: $1,000
- Used margin: $2,000
Then:
- Equity = 5,000 - 1,000 = $4,000
- Margin Level = (4,000 ÷ 2,000) × 100 = 200%
Monitoring these values regularly helps you make more informed trading decisions and avoid unnecessary risks.