How to calculate Margin Utilization?

What is Margin?

At Pivex, margin is the amount of virtual capital (from your simulated trading account) required to open and maintain a position. It serves as a risk buffer for your trades and helps ensure you are not overexposing your account to large market moves. Managing your margin effectively is essential to prevent breaches of drawdown limits and maintain your account’s health.

Example of Used Margin at Pivex:

Let’s say you’re trading 1.50 lots of AUD/USD with a leverage of 1:30 on a $5,000 account.

• Lot Size: 100,000 units
  
• Total Units: 1.5 x 100,000 = 150,000
  
• Price of AUD/USD: 0.62982
  
• Position Size: 150,000 x 0.62982 = $94,473
  
• Required Margin: $94,473 ÷ 30 = $3,149.10
  

This means you’d be using over 60% of your account balance just to open this trade, which could quickly expose you to violations if the market turns against you.

What is Margin Utilization?

Margin utilization shows how much of your equity is being used to maintain open positions. It’s calculated as:

Margin Utilization (%) = (Used Margin / Equity) × 100

For example, if your equity is $10,000 and your used margin is $2,000:
→ Margin Utilization = (2,000 ÷ 10,000) × 100 = 20%

This means you’re using 20% of your account’s capital to support open trades.

Why Does It Matter at Pivex?

A high margin utilization ratio reduces your ability to absorb losses or open new positions. If your margin use gets too high and the market moves against you, your account is at greater risk of hitting the daily or overall drawdown limits, which could lead to account violation.

Leverage and Its Effect on Margin
• Higher Leverage (e.g., 1:100): Allows for larger position sizes with less capital but increases your exposure to risk.
• Lower Leverage (e.g., 1:10): Requires more margin per trade but reduces the chance of breaching drawdown limits and encourages better trade selection.

What’s a Safe Range for Margin Use?

At Pivex, it’s wise to keep margin utilization below 20% as a general rule, especially when you’re working with tight drawdown limits. Use stop-losses and avoid overleveraging to stay within risk boundaries.

Example of Strategic Margin Use at Pivex:

If you have a $50,000 simulated account, using just $5,000 (10%) as margin leaves you with a healthy buffer to manage open trades, adjust positions, or absorb temporary drawdowns without breaching limits.