Thursday, December 2, 2021

Margin Calculation for Cryptocurrencies Trading

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Ruey L.
Full time trader, part time poker player.

What Is Margin Trading?

Margin trading is making a good faith deposit with a broker to initiate and hold positions in the financial instruments that you are trading. In the case of cryptocurrencies trading, trading with margin means a portion of your account balance is set aside as a collateral while you are engaged in a trade(s).

Margin Maths

  1. Used Margin

Used margin= Notional value of a trade/ Leverage

For example, John wants to buy 1 lot of BTCUSD, and it is currently trading at $40,000. The leverage offered is 10:1.

The margin required would be $40,000/ 10= $4,000

Therefore, $4,000 will be set aside in John’s trading account as used margin.

  1. Margin Level

Margin level is important as brokers use this to determine if you can open additional trading positions. Most brokers set their Margin Call level at 100% and Stop Out level at 50%. Your margin level should be staying above 100% to be able to open new positions, and most people monitor their margin level to ensure their margin level remains above 500% for risk management purpose.

Margin Level = (Equity/ Used Margin ) x 100%

Does this look complicated to you? Fret not! MetaTrader 4/ cTrader are going to calculate this automatically for you.

Risk Management

Lot Size Calculation (3 Steps)

John wants to risk 5% on a trade with his $15,000 trading account, going long on XRPUSD with a 200 pips stop loss.

  1. Calculate Dollar Amount at Risk

$15,000 x 5% = $750

  1. Determine the Value per Pip

-Divide the amount risked by the stop to find value per pip;

$750/ 200 pips= $3.75 per pip

  1. Multiply the value per pip by a known unit/pip value ratio of XRPUSD. 

-In this case, with 100,000 units, each pip move is worth USD 10.

$3.75 per pip * [(100k units of XRPUSD)/(USD 10 per pip)] = 37,500 Units of XRPUSD 

= 0.37 Lot
(since 1 lot = 100,000 units)

OR….

We can skip all these hassles by utilising the Mini Terminal. It is one of the many smart trading tools that FXPIG provides to their traders.

Here is how it works:

  1. Drag ‘Mini Terminal’ from MT4 ‘s Navigator onto your chart as shown by the yellow highlight in the image below.
  1. Click on the button in the blue circle. The next window will pop up.
    You simply have to input the parameters according to your trading plan.
  1. The position will be initiated once you click on the ‘Place Order’ Button.
    Your open position will then be shown on the chart visually and also in MT4 Terminal (Ctrl + T)

Try out this handy Mini Terminal, or other smart trading tools to simplify your trading!

You can do so by simply going to fxpig.com and hop on their Live Chat and talk to their experienced Customer Support.

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