What is Tradeable Equity?

What is Tradeable Equity?

When we are setting up our risk management plans for trading we have to understand what is needed by the brokers in the way of a margin.

This is when understanding the broker terms 100:1, 200:1 400:1 is very important.

First let me explain tradeable equity. If you agree with the broker that he will lend you 100:1 on your margin, it simply means that you can trade 1 standard lot worth $100,000 with a margin of only $1000.00, if you only had $1000.00 in your account you have used all your tradeable equity so it is important to understand what the broker wants.

The other point is variation margin, once the trade is open your equity will fluctuate as the profit/ loss goes up and down according to the movement of the currency. If you have $2000.00 in your account and you buy 1 standard Lot and the margin requirement is $1000.00 if during the trade the margin fluctuates and the trade is going against you if your open losses show $1001 , although you still have another $999 in your account the Broker might well close the losing trade because he does not have sufficient margin as security.

When you are trading with an account of say $2000.00 and your margin is $1000.00 although your open trade will show equity of $1010 you still cannot use that money as margin for another trade. Yes the money is still yours but the broker wants it for security.

When you are trading with very small accounts and you limit the amount you want to risk, you must realize that you need to risk enough to open the lot size you nominate .

This applies very much when you are trading with Forex robots.

Source by Lyndsay Wilkinson

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