Simply put, leverage gives you the ability to trade beyond your account funds. With leverage, you can double your trading in a certain financial instrument without having to pay all the required funds. This means that you borrow a certain amount of money needed for the investment. So when you trade with leverage, all you pay is part of your position value.
A CFD is a form of leveraged trading. As the amount required to open and maintain a position is called "margin", leveraged trading is known as "margin trading". The term "leverage" is often used to denote that a small fluctuation in the price of a CFD can be magnified into a large change in profit and loss, with the degree of profit and loss depending on the degree of leverage used.
A “2%” leverage (or 1:50) means that a 1% change in the price of the asset will produce a 50% change in the price of the CFD.
For example, a $1,000 balance with a 1:50 leverage ratio has a trading ability of $50,000, allowing traders to purchase financial products worth up to $50,000.
Each time you open a new position, a certain percentage of the balance of your account will be withheld as the initial margin for the opening of the new position. The price of the currency pair, your trading volume, and your margin dictate the margin level you need to reserve for each trade. The amount of the margin is usually indicated in the base currency.
Maintenance margin is the minimum margin amount required to maintain the account when you hold the position. The margin ratio is equal to the available margin divided by the account equity, and the available margin is the equity minus the margin (used margin) required to establish an existing position.
Initial margin = contract value of open position at opening price * initial margin ratio (%)
Suppose you open a 200:1 leverage or 0.5% margin account.
If you open a mini-lot position with you margin, you don't have to use the full $10,000; you only need to provide an initial margin of $50 ($10,000 × 0.5%=$50).
Maintenance margin ratio (%) = initial margin ratio (%) * 50%
When you hold the position of a product overnight, your A/C may be charged / deposited into the product's corresponding overnight interest.
That is because when you trade a currency pair, the two currencies involved have overnight funding. For the currency you buy, you may receive interest, and for the currency you sell, you need to pay interest. The difference of interest on the currency pair will determine whether you will be charged or receive overnight interest corresponding to the product.
Formula for calculating the daily overnight funding of the daily position
= trading lot * contract size * opening price * daily overnight funding rate (%)
Any client may be charged/deposited overnight funding corresponding to the product for holding a currency pair position through the settlement time at Mitrade each day. The settlement time is GMT 22:00 (Winter time). Generally, overnight funding applies if you hold a position until this time. Please note that the time zone varies depending on your settings.
Balance = Deposit - Withdrawal + Realised Total P/L of closed positions, excluding P/L of current open positions.
Equity = balance + unrealised total P/L of open positions + overnight funding of all open positions
Equity is the value of the cash account after closing of all positions, that is, the disposable funds that reflect conversion of your trading account positions at market price.
Balance does not include the floating profits and losses in the position, while equity involves the floating profits and losses of open positions.
In the case of no open position, equity equals balance.
Profits and losses of profit/loss of all positions (excluding overnight funding).
Long: (current sell price - opening price) * trading lot * contract size
Short: (opening price - current buy price) * trading lot * contract size
Profits and losses of all positions (profit/loss + overnight funding)
Long: (current sell price - opening price) * trading lot * contract size + overnight funding
Short: (opening price - current buy price) * trading lot * contract size + overnight funding
The floating P/L of the remaining amount of the account after deducting the initial margin (the account balance that can be used for opening new positions or withdrawal)
Available balance = balance + unrealised total P/L of open positions + overnight funding for all open positions - total initial margin
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