How to Calculate Margin Trading
Margin trading allows you to leverage your investment, taking home the profits from a much larger transaction size than you can necessarily afford. The margin portion of your investment in margin trading is the minimum deposit amount required to fund your position, and usually represents a set fraction of the total transaction size, typically 5 percent.
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Instructions
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1
Log in to your broker account and select a margined product for investing.
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2
Find out your notional margin requirement, or NMR, which will usually be expressed as a percentage of transaction size and should be displayed within your account details online.
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3
Divide 100 by the NMR to give a multiplying factor, which will allow you to calculate the total possible size of a transaction possible on your margin account.
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4
Multiply the total amount in your trading account by the multiplying factor to calculate your total margin trading capacity.
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Tips & Warnings
Stay well within your margin requirements at all times, topping up your balance if necessary. This will help ensure you don't get margin called by the broker, which could result in the liquidation of some other positions and demands for payment.
Margined trading is particularly risky, with higher returns meaning higher potential losses. Adding stops to your positions will help curb the risks of a decrease in the value of your portfolio and to protect your trading capital.
