You see terms like "Free Margin" and "Margin Level %" flashing on your screen. Most beginners ignore these numbers until everything turns red, leading to a **Margin Call**.
To trade professionally, you must understand the **mechanics of your account**. You are not just trading charts; you are managing a leveraged line of credit. In this guide, we will demystify the math of Forex trading.
SVG 1: The Power of Leverage (Capital Efficiency)
1. Leverage and Margin: The Collateral
**Leverage** is a loan provided by your broker, allowing you to control a large position with a small amount of capital (collateral). The **Margin** is that "Down Payment" required to open a trade.
Key Margin Terms:
Equity: Balance + Floating Profit/Loss (Your *real* money).
Used Margin: Money locked by the broker to keep trades open.
Free Margin: Money available to open NEW trades (Free Margin = Equity - Used Margin).
**Truth:** High leverage is only dangerous if you use *all* of it. Professional traders use it for **capital efficiency**, not for over-risking.
2. Lot Sizes (The Unit of Trade)
In Forex, you buy currency by the "Lot". The Lot size determines the value per pip.
| Lot Type | Volume | Units | Value per Pip (EURUSD) |
|---|---|---|---|
| Standard | 1.00 | 100,000 | $10.00 |
| Mini | 0.10 | 10,000 | $1.00 |
| Micro | 0.01 | 1,000 | $0.10 |
3. The Danger: Margin Call & Stop Out
**Margin Level %** = (Equity / Used Margin) x 100. This number tells you how healthy your account is.
- **Margin Call (100%):** You are in the danger zone. Your broker is warning you.
- **Stop Out (50%):** The death zone. Your broker automatically closes your losing trades to protect their capital. This is how accounts are blown.
SVG 2: Margin Level Status (Health vs. Stop Out)
4. Position Size Calculation (The Safe Way)
Never choose a lot size based on "feeling". Professional traders **calculate it based on risk (1% Rule)**.
The Formula:
Lot Size = (Account Risk $ / Stop Loss Pips) / Value per Pip
If you used 1.00 Lot (Standard) on a $1,000 account with a 20 pip stop, you would risk 20% of your account in one trade. This is how beginners fail.
SVG 3: Position Sizing Calculation Flow (Risk-First Math)
Final Thoughts
Leverage is not your enemy; **ignorance is**. Professional traders often use high leverage accounts, but they calculate their position size so they only risk **1% of their equity**.
Respect the math, and the market will respect you. Don't do the math in your head; use the Lot Size Calculator to ensure disciplined **risk management**.
