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Basic concepts: Balance, Equity, Margin, Free Margin, Margin Level and Leverage
Basic concepts: Balance, Equity, Margin, Free Margin, Margin Level and Leverage

Learn basic concepts of trading with CFDs at NAGA

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Written by Support Team
Updated over a week ago

The Balance reflects your Profit and Loss (P&L) from closed positions. Balance are the funds in your account including all deposits, positive swaps and profits from closed trades, minus all withdrawals, negative swaps, losses from closed trades and any other commissions or charges.

Balance is the amount in your trading account excluding any floating P&L (open trades).

The Equity reflects the real-time calculation of your P&L. The Equity considers both open AND closed positions. This is the actual value of your account at any given time and fluctuates with market movement.

Therefore, if you have no open trades, Balance will be equal to Equity.

What is the difference between Margin, Margin Level and Free Margin?

Margin represents the amount of money that you need to open a trade, which is calculated based on your leverage for every specific asset.

Margin can be thought of as a good faith deposit or collateral, a portion of your funds that NAGA sets aside from your account balance to keep your trade open and to ensure that you can cover the potential loss of the trade. This portion is “used” or “locked up” for the duration of the specific trade. Once the trade is closed, the margin is “freed” or “released” back into your account and can now be “usable” again… to open new trades.

Margin = Position size / Leverage = Open Price * Lot Size * Contract Size / Leverage

Margin can be also understood as Used Margin or Invested amount.

Margin Level (ML) shows the ratio between your account’s Equity and Margin. It is a useful indicator of your account's 'health'.

ML = Equity / Margin * 100%

ML <= 150% : you will not be able to withdraw any funds from your account.

ML = 100% : you will receive a Margin Call notification for your convenience.

ML <= 100% : you cannot open new trades.

ML <= 50% : your trade(s) with a higher loss will be closed automatically (Stop Out) to keep the margin level above 50%.

We will send you a notification only when the margin drops below 100%. When it reaches 50% or when a trade is closed by Stop Out, no notification is sent.

In order to be able to withdraw your funds, your margin level must be higher than 150%. Please also bear in mind that the withdrawal fees are not included.

Free Margin (FM) tells you how much funds you have available to open new trades.

FM = Equity – Margin

FM = 0 : you have no funds available in your trading account to open new positions. The Margin Level is 100%.

Margin Requirement %: it refers to the Margin expressed as a percentage (%) of the “full position size”, also known as the “Notional Value” of the position you wish to open.

Required Margin: when margin is expressed as a specific amount of your account’s currency, this amount is known as the Required Margin. Each position you open will have its own Required Margin amount that will need to be “locked up”. Required Margin is also known as Deposit Margin, Entry Margin, or Initial Margin.

Example: with a Margin Requirement of 2%, only $2,000 (the “Required Margin’’) of the trader’s funds would be required to open and maintain a $100,000 EUR/USD position.

Leverage works by using a deposit, known as margin, to provide you with increased exposure to an underlying asset. Essentially, you’re putting down a fraction of the full value of your trade – and your provider is 'loaning' you the rest.

Your total exposure compared to your margin is known as the leverage ratio.

Example: You want to open a position with CFDs on stock XYZ. The stock price is $20, and the Margin Requirement is 5% (ratio of 1:20). That means that, you need to invest an amount (margin) of $1 (= $20 / 20) for a position of 1 stock.

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