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# I know margin value, but how it is good for me?

Dec 15, 2016 at 16:26
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3 Replies
Member Since Aug 30, 2010   108 posts
Dec 15, 2016 at 16:26 (edited Dec 15, 2016 at 16:32)
Hello,

i asked my broker how much it will cost me to BUY 10 shares of the Volkswagen stock while price in the chart is 128.75 and spread is 20. How do i calculate that. (here is the screen of the chart details: https://tinyurl.com/jjct9wf)

He told me that:
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'to calculate the required margin for 10 shares of #Volkswagen the calculation is number of shares * market price / leverage.

Therefore, you would do 10 * market price / 25 (required margin for shares is 4%).

You can use the link from our website for Volkswagen and you will see the current market price for buy or sell listed on the top right.

At this moment I am writing this email to you, the current market price is 128.75. In this case, you would calculate as follows: 10 * 128.75 / 25 = 51.50 EUR.'
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But how it is beneficial to me to know this value: 51.50EUR ? What is that how to work with it?
My free margin is \$202.64, no open trades. Thank You
Member Since Aug 30, 2010   108 posts
Dec 16, 2016 at 10:02 (edited Dec 16, 2016 at 10:13)
If anyone interested, here is described how to know how much i will loose because of the spread and the \$/€ value of one point (pip?):

For #Volkswagen, the tick value per share is 0.05 EUR (screenshot of the chart how to discover it: https://preview.tinyurl.com/hw5sosy). This means the each tick movement up with gain 0.05 EUR and each tick movement down will lose 0.05 EUR per share. If trading 10 shares, each tick (pip) movement would gain or lose 0.50 EUR.

Shares uses a set leverage of 1:25. Therefore, as explained in the previous email, if you were to trade 10 shares for example, this would require roughly 52 EUR.

If you want to know what the initial loss would show due to the spread when you open the position, you would multiply the tick value based on the shares you are trading * current spread. In the example using 10 shares, you would multiply the tick value of 0.50 (tick value for 10 shares) * 15.0 (current spread) which equals 7.50 EUR.

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So i open trade on my tiny \$200 account and i am in loss of approx. €7.5 and each point is approx. €0.5 loss/gain. That is impossible to do on small balance.
Member Since Aug 17, 2021   94 posts
Oct 30, 2021 at 13:10
Proper use of margin will allow you to bridge the temporary capital gap. For a disciplined investor, the margin should always be used in moderation and only when necessary. When possible, try not to use more than 10% of your asset value as a margin and draw a line at 30%.
Member Since Jul 23, 2020   869 posts
Nov 03, 2021 at 19:54 