Having a brain fart on figuring out margin used based on stop? | Forex Factory

Options

Permalinks
Print Thread

Similar Threads

Please help: figuring out spread based on commission 5 replies

Margin/Margin calls based on equity? 5 replies

difference between Usable Margin and Used Margin 9 replies

Need Help Figuring this out... 1 reply

Figuring out stop levels 5 replies

Attachments: Having a brain fart on figuring out margin used based on stop?
Exit Attachments

Having a brain fart on figuring out margin used based on stop?

  • #1
  • First Post: Jun 7, 2022 9:49pm Jun 7, 2022 9:49pm
Hello.

I am trying to figure out, before a trade is placed, how much margin I will use up as the trade runs to its stop. I.e., I'd like to figure out how much margin will be used so that I can stay above the brokers 50% margin requirement at all times.

Is it as simple as figuring out how much a trade will lose in your account(positionSize *stopSize), and assuming a 1:1 correlation between used margin, and how much the stop loss costs you?

E.g. below of various variables. Account is in USD, assume pairs with Usd as quote pair(Aud/Usd, Eur/Usd). The below is just an example for simple math.

*Pair: Long Eur/Usd
*Account Balance: $1,000.00
*Margin/Leverage: 2% or 50:1
*Stop Size: 0.0030
*Units traded: 10,000 units

Is the idea to take the cost of the unrealized: StopSize *UnitsTraded =0.0030*10,000 = $30.00
Then multiply the unrealized by the leverage to get the leveraged dollar value of the stop = $30.00*50 = 1500.00
So your account value would be: Account Balance * leverage = $1,000.00 * 50 = $50,000.00
SO the total margin used as this trade approaches the stop would be: leverage Dollar Val of Stop ÷ Accnt Val = 1,500 ÷ 50,000 = 3%

The above is essentially the same as taking the COST of the stop($30) divided by the initial account balance($1000).

However, I am not sure any of this is correct?

I'm not smart, can someone simplify this?

THanks,
FP
  • #2
  • Jun 21, 2022 7:46am Jun 21, 2022 7:46am
Okay, so you have 1000 usd in your account. Leverage 50:1. So you have a buying power 1000 x 50 = 50 000 usd.
Let's say you open a trade where main currency is usd (usd/jpy, usd/cad etc.). To open a usd/jpy trade with 0.1 lots (10 000) you will need 10 000 usd. With leverage you have a 50 000 on your account, so on 0.1 lot you will use 20%.
Eur/usd main currency is eur. Exchange rate 1.05600. To buy 0.1 lot (10 000 eur) you need 1.05600 x 10 000 = 10 560 usd.

What is "the brokers 50% margin requirement" ? I don't understand, if you have 50:1 leverage than you should be able to open 0.5 trade on usd pair (50 000 usd). If you must stay above the brokers 50% margin requirement, then 50:1 leverage doesn't make any sense.
  • #3
  • Edited 2:16pm Jun 21, 2022 2:06pm | Edited 2:16pm
https://www.babypips.com/learn/forex...is-free-margin

https://www.babypips.com/learn/forex...s-margin-level

https://www.babypips.com/learn/forex...gin-call-level

https://www.babypips.com/learn/forex...-level-example

Best & Simplest explanation.
It never gets easier, you just get better
  • #4
  • Jun 21, 2022 2:47pm Jun 21, 2022 2:47pm
Quoting BlaBlaFx
Okay, so you have 1000 usd in your account. Leverage 50:1. So you have a buying power 1000 x 50 = 50 000 usd.
Let's say you open a trade where main currency is usd (usd/jpy, usd/cad etc.). To open a usd/jpy trade with 0.1 lots (10 000) you will need 10 000 usd. With leverage you have a 50 000 on your account, so on 0.1 lot you will use 20%.
Eur/usd main currency is eur. Exchange rate 1.05600. To buy 0.1 lot (10 000 eur) you need 1.05600 x 10 000 = 10 560 usd.
At the time I wrote this post, I knew how to calculate the margin required to OPEN a position, my question was how to calculate the margin used while a position is OPEN. I.e., I wanted to know how much margin you will use up, once a position is open, and price moved y-tics against you.



Quoting BlaBlaFx
What is "the brokers 50% margin requirement" ? I don't understand, if you have 50:1 leverage than you should be able to open 0.5 trade on usd pair (50 000 usd). If you must stay above the brokers 50% margin requirement, then 50:1 leverage doesn't make any sense.
I dunno why they do this. But here is a LINK where they explain the margin requirement, which I suppose means your leverage is really 25:1?
  • #5
  • Jun 21, 2022 2:56pm Jun 21, 2022 2:56pm
Quoting Shabs19
https://www.babypips.com/learn/forex...is-free-margin https://www.babypips.com/learn/forex...s-margin-level https://www.babypips.com/learn/forex...gin-call-level https://www.babypips.com/learn/forex...-level-example Best & Simplest explanation.
I completely forgot I posted this thread here.

I was using babypips for examples, but the examples there didn't help me figure it out. I was unable to really translate the babypips examples into the information I needed.

But I did eventually figure it out.

I asked the same question on ET at THIS link if interested, and managed to work it out. But I will post the solution I came up with to figure out HOW much margin you would use, given a desire MAX margin USED, and a desired stop size where you'd bail out of the trade.

If you don't want to read the entire thread, I'll just paste the work I did below.

The Inputs are:
Pair: Aud/Usd
Balance = B = $35.23
Trade Price = Price = p = 0.7115
Stop Size = SS = 0.00026
Units = U = 200
Margin = m = 0.03 / 3%



The Outputs are:
Stop Cost = SC = Units * StopSize = 200 * 0.00026 = $0.05
Margin Used = mu = Units * Margin * Price = 200 * 0.03 * 0.7115 = $4.27
Nav(Net Asset Value)/Equity = NAV = Balance + Stop Cost = $35.18
Margin Percentage(Percentage of your Used Margin) = MP = Margin Used ÷ NAV = 12%


The Red line above is the one I am after. So if I were to place this trade, I'd know at MAX, I would use 12% of my margin if it runs to my stop. This way, if I happen to have variable stop sizes, I can always use the same Margin amount in my account. You can imagine, if you have a typical stop of 40 pips, and then for whatever reason you have a 5 pip stop... even though you can risk the same dollar amount, the margin used will be wildly different. This will affect your ability to open/maintain additional positions.


The equations I used are:
MP = (mu ÷ NAV) = (U * m * p) ÷ (B + SC) = (U * m * p) ÷ (B + U*SS)


Here I solve for U, as I want to know how many Units to buy to hold a max margin of my account. This tells me how many units to buy, assuming a given stop size, and a desire max margin I am willing to use from my account.
U = (B * MP) ÷ (m*p - MP * SS) = (35.23 * 0.12) ÷ (0.03*0.7115 - 0.12* 0.00026) =198


I checked this for the other picture also, when it was in profit, and it matches also.


Also to note... all the inputs and outputs used, where just to solve for what the formula should be. For actual trading, the inputs would be the desire max margin, and not the Units, as the units are what is being solved for.
Attached Image (click to enlarge)
Click to Enlarge Name: 2022-06-10_180152.PNG Size: 90 KB
  • #6
  • Jun 22, 2022 1:49am Jun 22, 2022 1:49am
You did a great job.

Quoting forrestang
I dunno why they do this. But here is a LINK where they explain the margin requirement, which I suppose means your leverage is really 25:1?
The link makes it clear. There is an example at the bottom of the page.
Account currency: GBP
In this example, you have one open long position in 10,000 units of GBP/ZAR. You are trading this instrument with leverage of 20:1.
With the above in mind, the margin needed to open your position was five percent of 10,000 GBP = 500 GBP. Therefore, the margin required to maintain your open position is 0.5(500 GBP) = 250 GBP.
This position will close therefore when your account’s NAV falls to 250 GBP or below.

With 1000 usd in your account and 50:1 leverage you can open a position with 0.5 lots (50 000). Margin needed to open your position is 1000 usd. Therefore, the margin required to maintain your open position is 50% = 500 usd.

With your inputs:
*Pair: Long Eur/Usd
*Account Balance: $1,000.00
*Margin/Leverage: 2% or 50:1
*Stop Size: 0.0030
*Units traded: 10,000 units

Eur/usd main currency is eur. Exchange rate 1.05600. To buy 0.1 lot (10 000 eur) you need 1.05600 x 10 000 = 10 560 usd. Margin used = 10560/50 = 211.2 usd. Therefore, the margin required to maintain your open position is 50% = 105.6 usd.
Unless you are going all in or open multiple positions this should not bother you.
  • #7
  • Jun 24, 2022 6:51am Jun 24, 2022 6:51am
This is an MT4 indicator, the output on the last line is what you are after.
You can vary your Stop size & Risk percentage to set an acceptable Margin percentage.

Attached Image (click to enlarge)
Click to Enlarge Name: 2022-06-24_12h45_17.png Size: 5 KB
It never gets easier, you just get better
  • #8
  • Jun 24, 2022 7:28am Jun 24, 2022 7:28am
I don't use MT4 regularly, but that looks like a cool indicator.

I was surprised on asking this question, how difficult it was to get people to understand the question I was asking, and how few people seemed to know how to do the calculation. I thought I was the only person that didn't know how to do it? I'm mainly referring to the responses I got in the semi-active ET thread I created.

I guess many, like myself, just based position size on how much $-risk you wanted to incur, on any ONE single trade.
  • #9
  • Jun 24, 2022 7:36am Jun 24, 2022 7:36am
Quoting BlaBlaFx
You did a great job. {quote} The link makes it clear. There is an example at the bottom of the page. Account currency: GBP In this example, you have one open long position in 10,000 units of GBP/ZAR. You are trading this instrument with leverage of 20:1. With the above in mind, the margin needed to open your position was five percent of 10,000 GBP = 500 GBP. Therefore, the margin required to maintain your open position is 0.5(500 GBP) = 250 GBP. This position will close therefore when your account’s NAV falls to 250 GBP or below. With 1000 usd in...
Howdy.

As mentioned in the original post, I am not particularly smart, so I don't quite understand.

But, does the calculation you used above take into account a number of tics that price moves AGAINST your open position? I note you have a stop size listed in your input section... but are you showing a margin used based on a desired stop size AND a desired max margin used? Or is the calculation simply based on a percentage of margin used, and it always assumes you're using up to 50% of your margin on all trades?

The thing that I was specifically after... was that I wanted to enter a desired max margin I wanted to use(E.g. 20%) and a desired number of pips I wanted to allow the position to move against me before I would exit(E.g. 50pips).... and the OUTPUT I wanted was a number of UNITS I would need to buy to satisfy those two inputs.

More specifically, I wanted to be able to input ANY number in there for the % of margin used(0-100%), or ANY number for the stop size(0-1,000,000,000 pips), and have it tell me how many units I would buy.

The point is mostly moot now as I've already got it... but I'm just curious if that is what your post said, or is it something else?
  • #10
  • Jun 25, 2022 12:59pm Jun 25, 2022 12:59pm
I will be short so we won't have a brain fart again.

If you have any amount in usd in your account and 50:1 leverage, then the margin = amount you are buying/leverage. And your NAV should be higher than 50% of that.

It looks like I have made this topic a little bit more difficult than it was. Sorry for that.

Your calculations look great. Glad that you have achieved your goal. Have a nice weekend.
  • #11
  • Jun 26, 2022 12:40pm Jun 26, 2022 12:40pm
Quoting forrestang
Hello. I am trying to figure out, before a trade is placed, how much margin I will use up as the trade runs to its stop. I.e., I'd like to figure out how much margin will be used so that I can stay above the brokers 50% margin requirement at all times. Is it as simple as figuring out how much a trade will lose in your account(positionSize *stopSize), and assuming a 1:1 correlation between used margin, and how much the stop loss costs you? E.g. below of various variables. Account is in USD, assume pairs with Usd as quote pair(Aud/Usd, Eur/Usd). The...
Why reinvent the wheel ? Just use your platform. Most offer this. I use ctrader. I dont even need to ask it, it automatically shows all the info you are asking for. If your broker does not offer a platform that does, just open a demo at one and use it and focus on trading, not finding or building tools that already exist. Hope that helps !
If I don't mention SL and/or TP = longer-term setup possibly in the works!
  • #12
  • Jun 26, 2022 3:55pm Jun 26, 2022 3:55pm
Quoting mtako
{quote} Why reinvent the wheel ? Just use your platform. Most offer this. I use ctrader. I dont even need to ask it, it automatically shows all the info you are asking for.
Maybe I am wrong, but I am almost certain that my platform(or any I have ever used) does not show me that information? It only shows me the margin used, while I am IN a position. This was not the information I was looking for.

The information I was after... was... given a desired STOP SIZE, and a desired MAX MARGIN to be used... how many units would I need to purchase to satisfy these conditions.

If curious, I explained in THIS post the answer to the question I originally asked.

The formula for figuring out, how many units to buy for a given STOP SIZE, and a given MAX margin to be used is:
U = (B * MP) ÷ (m*p - MP * SS)

Where MP is the desired MaxMargin to be used, and SS is the desired StopSize.
  • #13
  • Jun 26, 2022 4:47pm Jun 26, 2022 4:47pm
Maybe what you need is something like this.

Position Size Calculator for MetaTrader (earnforex.com)

Just bear in mind that taking positions with that tool will count as "algo trading" on your MQL profile. I was wondering how it figured I was 6% robot - but someone explained that taking the positions using tools like that may count as automated trading. Disappointing though - was hoping I had some nanobots or something inside me...
  • #14
  • Jun 26, 2022 5:06pm Jun 26, 2022 5:06pm
Quoting khat17
Maybe what you need is something like this. Position Size Calculator for MetaTrader (earnforex.com) Just bear in mind that taking positions with that tool will count as "algo trading" on your MQL profile. I was wondering how it figured I was 6% robot - but someone explained that taking the positions using tools like that may count as automated trading. Disappointing though - was hoping I had some nanobots or something inside me...
It looks very detailed!

But I wouldn't need it now as I've already figured it out, and I don't really use MT4.

I skimmed through some of it, and I do see it will calculate margin used upon entry. I see another screen where you would calculate $-risk, but I don't know if it shows anywhere the answer I was looking for?

But, even if it does... tools that do these calculations are great, but its good to know how the calculation is done, which was what I was after. With the formula, I was able to build the tools I wanted in the platform that I use.
  • #15
  • Jun 26, 2022 5:16pm Jun 26, 2022 5:16pm
Quoting forrestang
{quote} It looks very detailed! But I wouldn't need it now as I've already figured it out, and I don't really use MT4. I skimmed through some of it, and I do see it will calculate margin used upon entry. I see another screen where you would calculate $-risk, but I don't know if it shows anywhere the answer I was looking for? But, even if it does... tools that do these calculations are great, but its good to know how the calculation is done, which was what I was after. With...
Alright! Glad you got it sorted.
  • #16
  • Last Post: Jun 27, 2022 8:15am Jun 27, 2022 8:15am
Quoting forrestang
{quote} Maybe I am wrong, but I am almost certain that my platform(or any I have ever used) does not show me that information? It only shows me the margin used, while I am IN a position. This was not the information I was looking for. The information I was after... was... given a desired STOP SIZE, and a desired MAX MARGIN to be used... how many units would I need to purchase to satisfy these conditions. If curious, I explained in THIS post the answer to the question I originally...
Good job! Iwas just stating that there are some platform that do the work for you, like ctrader... in case it could help anyone. but I see you are beyond that now. nice work!
If I don't mention SL and/or TP = longer-term setup possibly in the works!
0 traders viewing now