Margin level in gold trading

Margin level is the ratio of equity to used margin, expressed as a percentage: (equity ÷ used margin) × 100. It is the figure platforms watch to decide whether an account is healthy. A level of 1,000% means equity is ten times the margin locked up; 100% means equity exactly covers the margin; below that, the account is in deficit relative to its collateral.

How it applies to gold trading

Take an account with $5,000 equity and one open 0.50-lot gold position using $2,000 of margin. Margin level is 250%. If gold moves against the trade by $30, the loss is $1,500, equity falls to $3,500 and margin level drops to 175%. At a $60 move, equity is $2,000 and margin level is 100%, a typical margin-call threshold. At $80, equity is $1,000 and margin level 50%, a common stop-out level, where the platform closes positions.

The arithmetic shows why the gold price only had to move about 2% for a leveraged account to be liquidated: the position was forty times the equity.

Platforms display the margin level live in the terminal, and many allow an alert at a chosen threshold, which is a sensible early warning well above the levels where the platform itself acts.

A common mistake

Watching the balance instead of the margin level. Balance does not change until a trade closes; margin level changes with every tick and is what the platform acts on.

See also: Margin call, Stop-out, Equity, Free margin.

Frequently asked questions