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Trading Scenario: Starting with $100
Step 1: Deposit Funds Into Trading Account
You start with a trading account balance of $100.
Step 2: Calculate Required Margin
You open a long position on the EURUSD with 0.01 standard lots (100,000 units of the base currency). The required margin for this position is $10.
Step 3: Calculate Used Margin
The Used Margin is the margin required to maintain your open position, which is $10.
Step 4: Calculate Equity
Your initial account equity is the same as your account balance, which is $100.
Step 5: Calculate Free Margin
The Free Margin is the difference between your Equity and your Used Margin.
Free Margin = Equity – Used Margin
Free Margin = $100 – $10 = $90
Step 6: Calculate Margin Level
The Margin Level is the ratio of your Equity to your Used Margin, expressed as a percentage.
Margin Level = (Equity / Used Margin) x 100%
Margin Level = ($100 / $10) x 100% = 1000%
EURUSD drops by 200 pips!
The EURUSD pair starts to decline, and your floating loss increases to $20.
| Used Margin | Floating P/L | Equity | Free Margin | Margin Level |
|---|---|---|---|---|
| $10 (unchanged) | -$20 | $100 – $20 = $80 | $80 – $10 = $70 | ($80 / $10) x 100% = 800% |
In this scenario, your Margin Level remains above the 50% Stop Out Level set by your broker, and your equity is still positive at $80.
Broker Actions
Since your Margin Level is still above the 50% Stop Out Level, your broker will not automatically close your trading position. You can either choose to hold the position and wait for the market to recover, or you can manually close the position to limit your losses.
This scenario demonstrates that even with a small account balance of $100, you can maintain a viable trading position if you use appropriate leverage and risk management.
In this scenario, the key points are:
1. You start with a trading account balance of $100.
2. You open a long position on EURUSD with 0.01 standard lots (100,000 units of the base currency), which requires $10 in margin.
3. When the EURUSD pair drops by 200 pips, your floating loss increases to $20, causing your equity to drop to $80.
4. Despite the loss, your Margin Level remains above the 50% Stop Out Level, so your broker will not automatically close your position.
5. You can choose to either hold the position and wait for the market to recover, or manually close the position to limit your losses.
This scenario demonstrates that with proper risk management, even a small account balance of $100 can be used to maintain a viable trading position. The key is to use appropriate leverage and ensure your Margin Level stays above the Stop Out Level, so your broker doesn’t automatically close your position.
The takeaway is that traders should start with an adequate account balance, use appropriate position sizes, and carefully monitor their Margin Level to avoid being stopped out during market volatility.
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