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Preschool Margin Trading 101: Understand How Your Margin Account Works

What is Account Balance?

What does “Account Balance” mean?

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In order to start trading forex, you need to open an

account with a retail forex broker or CFD provider.

Once your account is approved, then you can transfer

funds into the account.

This new account should only be funded with “risk

capital”, which is cash you can afford to lose.
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The “Account Balance” or simply “Balance” is the starting balance of your

account.

Basically, it’s the amount of CASH in your account.

Think of it this way:

Balance = Cash

Your Balance measures the amount of cash you have in your trading
account.
If you deposit $1,000, then your Balance is $1,000.

If you enter a new trade or in trader lingo, “open a new position”, your
account balance is not affected until the position is CLOSED.

This means that your Balance will only change in one of three ways:
 1. When you add more funds to your account.
2. When you close a position.
3. When you keep a position open overnight and either receive or pay
swap/rollover fee.

Since the topic is about margin, the concepts of swap and rollover aren’t
really related but for thoroughness, we’ll quickly describe it since swap
fees do affect your Balance.

Just know that there’s a difference between a trade that lasts a couple of
hours and a trade you keep open overnight.
The procedure of moving open positions from one trading day to another is
called a rollover.

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Most brokers perform the rollover automatically by closing any open

positions at the end of the day, while simultaneously opening an identical
position for the following business day.

During this rollover, a swap is calculated.

A swap is a FEE that is either paid or charged to you at the end of each
trading day if you keep your trade open overnight.

If you are paid swap, cash will be added to your Balance.

If you are charged swap, cash will be deducted from your Balance.

Unless you’re trading huge position sizes, these swap fees are usually
small but can add up over time.

In MetaTrader, you can see swaps on your open position (if you keep it
open for longer than 1 day) by opening a “Terminal” window and clicking on
the “Trade” tab.
The concept of swap and rollover is beyond the scope of this lesson and
will not be discussed further, but we just wanted to cover if briefly for
accuracy’s sake.

Now that we know what Balance means, let’s move on to understanding

the concepts of “Unrealized P/L” and “Realized P/L” and how they affect
your Balance.
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What is Unrealized P/L and Floating P/L?

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