What is Margin Level?

Margin level is a metric that reflects the status of a trader's account.

It's a ratio comparing account equity to the used margin.

Essentially, it indicates the amount of margin required to maintain open positions relative to the total available funds in the account.

Margin level is usually expressed as a percentage, and is calculated using the following formula:

Margin Level = (Account Equity / Used Margin) * 100

Where

Account Equity = Account Balance + Floating Profit and Loss - Commissions

Why Does Margin Level Matter?

Margin level serves as a measure of the risk of a trader's open positions and directly impacts a trader's ability to open new positions, and to maintain open positions without encountering a margin call or broker stop out.

Do all brokers act on the same Margin Levels?

No, all brokers calculate margin level the same way, but they may use differing levels for Margin calls and Stop outs.

Understanding Margin Level

It's important to recognise in the formula above that account equity is  the sum of account balance, current profit and loss, and commissions.

This means positions in the red will draw down against your equity and therefore lower your margin level. Which can lead to margin level dropping to the point of a broker stop out, even without opening any new positions.

Margin Level in VEMA Trader

Your margin level can be found within the wallet balance dropdown, where it will show under the relevant account:

As well as under your exchange account when setting up a position:

Note that in both these instances, it will show an info symbol when margin level is above 200% (considered relatively safe) and a warning symbol if it drops below 200%  (as margin calls and broker stop outs begin to become a higher risk).

VEMA also alerts users if their margin level drops below 140% with an email, as here Margin Calls and stop outs are becoming increasingly likely.

This email is aimed at alerting traders they may want to check their trades and potentially close some positions before their broker decides to do it for them.

What does all of this actually look like?

Note: The figures used in the example below for Margin call and Broker Stop out are general, it's important to note they may not be true of the broker you are trading with.

Imagine a trader has a $1,000 USD account at 100x leverage, and opens a 0.1 lot position (10,000 unit) on USDJPY,

their used margin would then be:

$10,000 USD / 100x leverage = $100 USD

At the time of opening, their P&L would be zero, and let's assume for simplicity this is a zero fee broker, so their margin level becomes:

($1,000 account balance / $100 used margin) * 100 = 1000%

At this point the trader has plenty of room to manoeuvre. At 1000% margin level this position would have to go heavily against them before a margin call was in order.

Now let's imagine they open four other similar positions, tieing up another $400 of margin. Their used margin is now $500.

Their margin level now becomes:

($1,000 account balance / $500 used margin) * 100 = 200%

Still pretty good, but this is the point VEMA will begin warning you when creating new trade setups.

As your margin gets under 200% you get closer to margin calls and stop outs, especially when opening new positions as the margin required to open the position can drop your margin level significantly.

Let's say these five trades then go against our trader, so that the unrealised  P&L of their positions becomes a net loss of $300.

Their margin level is now:

({$1,000 account balance - $300 P&L} / $500 used margin) * 100 = 140%

At this point, VEMA sends an email warning the user they may want to take action as their margin level is getting low.

Let's say they choose to ignore this, figuring price will go back in their favour at some point.

Unfortunately it does not, instead continueing to go against them.

Their broker sends them a margin call email at 120%. They ignore this one too.

Once their floating P&L reaches a $500 loss, it's too late.

Thier margin level is now:

({$1,000 account balance - $500 P&L} / $500 used margin) * 100 = 100%

Their broker now stops them out, closing them out of positions to protect the broker from losses the trader may not have the funds to re-pay.