Leverage increases both downside and upside to risk as the account is now that much more sensitive to price movements.
Profit or loss = 10 $ (if the market moves favor of you your profit 10$, other hand, market moves against of you your profit -10 $, it means loss 10$)
Balance: When you have not any open trade, the balance is that the quantity of the money you have got in your account, for example, after you have a deposit 10000$ account and also you have not any open trade, your account balance or your money is 10000$
Equity: Equity is your account balance plus the floating profit or losses of your open trades. If you have not any open trades your equity equals to your balance
Equity = Balance + Floating profit / loss
For example, your balance = 10000 $
Your open trade profit = 500 $
Equity= 10000 + 500 = 10500 $
(If open trade loss = 500 $
Equity = 10000 – 500 =9500 $)
Margin: Margin is that the amount of the money that traders in trade or position, margin is calculate supported the leverage, first consider leverage is 1:1
For example, your account size is 10,000 $, you would like to buy 1000 Euro against the dollar (USD). What quantity US dollar you have got to pay to buy 1,000 Euro?
Current EUR/USD price rate is 1.3500. It means one Euro equals to 1.3500 US dollars, therefore you have to pay 1.3500 * 1,000 = 1350 $
If you use 1:100 leverage means you have to pay 1350/100 = just 13.5 $ only
Free Margin: Free margin is equals to difference between Equity and margin
For example, your equity = 10500 $
Your margin = 1350 $
Free margin = 10500 – 1350 => 9150 $
Margin level:Margin level is the ration of equity to margin
Margin level =) equity/margin) * 100
Margin level is incredibly vital. Brokers use it to see whether or not the traders will take any new positions or not. Completely different brokers have different limits for the margin level; however, this limit is sometimes 100% with most of the brokers. This limit is termed margin call Level. 100% margin call level means that if your account margin level reaches 100%, you'll be able to still close your open positions; however you cannot take any new position. Indeed, 100% demand level happens once your account equity equals the marginal. It happens after you have been losing position and also the market keeps on going against you and once your account equity equals the margin, you may not be ready to take any position.
Let’s say you have got a $5,000 account and you have a losing position with $500 margin. If your position goes against you and it goes for a loss of -$4500, then the equity you have $500 ($5,000 – $4,500), that equals the marginal. Thus the margin level is going to be 100%. If the margin level reaches 100%, you may not be ready to take any new position, unless the market turns for your favor and your equity becomes bigger than the margin.
If the market keeps on going against you, the broker can need to close your losing positions. Completely different brokers have different limits for this too. This limit is named Stop out Level. If your margin level reaches 5%, our system starts closing you’re losing positions automatically. It starts from the largest losing position. Usually, closing one negative profit position can take the margin level more than 5%, as a result of it can release the margin of that position and then the whole margin can go lower and therefore the equity can go higher and thus the margin level will go higher. The system takes the margin level more than 5% by closing the largest losing position initially. However, if you’re different losing positions stick with it losing and therefore the margin level reaches five-hitter once more, the system can shut another losing position.
Why the broker closes your positions once the margin level reaches the Stop out Level?
The reason is that the broker can’t allow you to lose over the money you have deposited in your account. The market will stick with it goes against you forever and therefore the broker can’t pay for this continuous loss. It is sensible, doesn’t it?
Equity= $ 4500
Margin = $ 500
Margin level = (Equity/Margin) *100
Stop loss: This order is used to reduce your losses if the currency pair price starts to move in an unprofitable direction. For instance, if you bought a currency and it start to fall; your stop loss would keep you from losing more than you wanted to by selling. Other hand, if you sold-out a currency and it start to get up, your stop loss would keep you from losing more than you wanted to by buying automatically.
For your buy entry you can set a stop loss below the current market level, also your sell entry you can set a stop loss above the current market level.
Take profit: This order is used to gain profits if the currency price begins to move in a profitable direction. Market goes downside to the Take Profit is that sometimes you get in on the bottom floor of a particularly profitable trend that continues long when you have got excited and you accidentally deprive yourself of an excellent additional profitable trade.
For your buy entry you can set take profit above the current market level, also for your sell entry you can take profit below the current market level.