Margin ratio is used for expressing the forex leverage in a ratio format.
When trading in financial instruments such as stocks, commodities or forex, your broker will provide you with leverage to help you in trading. This leverage will allow you to make purchases of more than the funds available with you. However, the broker will set a limit on the amount of leverage available. This limit will be expressed as margin ratio.
Example 1: For every $100 you invest in forex, let's say your brokerage will allow you to make purchases of $300. This will be expressed as a margin ratio of 3:1. If the broker allowed you a leverage of $400, the margin ratio would be 4:1.
The margin ratio available for trading varies by instruments. For equities, the margin ratio is typically 2:1, meaning for every $100 in your account your broker will allow you to purchase equity worth $200.
In the foreign exchange market, most brokers provide a very high margin ratio, sometimes up to 400:1. So for every $100 in your account you can purchase forex of up to $40,000.
The margin ratio or leverage is determined by your brokerage, and you should confirm the margin ratio before any trading.
Use our Forex margin calculator to determine your 'margin used' based on the margin ratio and the number of units. Whether an active forex trader, a student reviewing forex or simply interested in forex, try out our Forex margin calculator.
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