**Margin Impact = Used Margin****1**** - Floating P&L****1**

where:

**Used Margin****1**** ****= (Bid + Ask) / 2 * Lots * Leverage**

and

**Floating P&L****1**** = (Bid - Ask) * Lots **

When you place an order at CEX.IO Broker, you see an indicator called Margin Impact. It is an important number that shows how the buying power available to you on your trading account changes as the result of the order execution. In this post, we will explain the logic and the formulas behind the Margin Impact, so next time you are placing an order, it makes sense to you.

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Since margin trading means the use of leverage, to open a position of a certain size, you need funds less than the position size. These funds are taken out of your Usable Margin (your currently available cash) and moved to Used Margin to serve as collateral for the open position. It is Margin Impact that shows how much money will be moved, hence by how much your buying power will be changed, as the result of this new position.

### Margin Impact Formula

Since Margin Impact signifies the change of the buying power of your trading account, in the most general terms, Margin Impact is the difference between what you have as Usable Margin now and what you will have right after, when the position opens.

**Margin Impact = Current Buying Power - Prospective Buying Power**

And Usable Margin is what represents your buying power at a specific point of time. So, Margin Impact formula will look like this:

**Margin Impact = Usable Margin BEFORE Position Opens - Usable Margin AFTER Position Opens**

And the Usable Margin is calculated the following way:

**Usable Margin = Balance + Floating P&L - Used Margin**

For simplicity’s sake, as a starting point, let’s assume there are no other open positions on a trading account (it will work out exactly the same way if some positions were already open, we’d just calculate the impact of the new, additional position). Our formula will transform:

**Margin Impact = (Balance****0 ****+ Floating P&L****0 **** - Used Margin****0 ****) - (Balance****1 ****+ Floating P&L****1 **** - Used Margin****1 ****) **

Where Floating P&L0 and Used Margin0 both equal to zero (no positions open yet). And Balance0 and Balance1 are equal to each other because the opening of a position itself does not change the Balance (well, it does in the sense that the open fee is subtracted, but it’s a separate unrelated to Margin Impact matter and you can think of it as separated in time. We are assessing the Margin Impact now and the position might not even open at all in the future).

From the observations above, the formula will change:

**Margin Impact ** **= Balance****0 ****- (Balance****1 ****+ Floating P&L****1 **** - Used Margin****1 ****) = Used Margin****1**** - Floating P&L****1**

**Margin Impact = Used Margin****1**** - Floating P&L****1**

So now we need to assess the **Used Margin****1 **or also called the Prospective Margin and **Floating P&L****1** or Floating P&L immediately after the position opens.

**Used Margin****1**** or Prospective Margin**

Prospective Margin shows the additional margin used up as a result of a new position. Again, if there were more positions open before, the Used Margin would mean the Used Margin added by this new position, i.e. **change** in the Used Margin before it was open and after.

**Used Margin****1**** = Mean Asset Market Price * Lots * Leverage**

(where **leverage** is expressed **as a ratio**, e.g. 1/2 for 1:2 leverage, 1/3 for 1:3 leverage)

Or:

**Used Margin****1**** = (Bid + Ask) / 2 * Lots * Leverage**

**Floating P&L**

Since the pairs are traded with a **spread,** a Buy order is always executed at Ask (slightly higher) and a Sell order is always executed at Bid (slightly lower) price. That means opening a position immediately creates a **small loss** equal to the impact of spread, adjusted to the position size.

**Floating P&L****1 ****= Spread Impact = (Bid - Ask) * Lots **

And now we got everything we need to calculate Margin Impact (and understand what it means!)

**Margin Impact = Used Margin****1**** - Floating P&L****1**

**Used Margin****1**** = (Bid + Ask) / 2 * Lots * Leverage**

**Floating P&L****1 ****= Spread Impact = (Bid - Ask) * Lots **

Things to keep in Mind

If you trade a currency that’s different from the currency of your account (which you can do!), there might be also a **currency conversion** affecting the margin impact. For example, if you use BTC/USD pair and your trading account in EUR, there will be an additional conversion impact.

Example

The screenshot shows the placing of a market order for BTC/EUR pair and the Margin Impact of € 324.76.

Bid = €6,494.4

Ask = €6,494.7

Lots = 0.1

Leverage = 1/2

**Used Margin****1**** = (Bid + Ask) / 2 * Lots * Leverage**

Used Margin1 = (6,494.4+6,494.7)/2 *0.1*½ = 324.7275

**Floating P&L****1****= Spread Impact = (Bid - Ask) * Lots**

Floating P&L1 = (6,494.4 - 6,494.7)*0.1= - 0.0300

**Margin Impact = Used Margin****1**** - Floating P&L****1**

Margin Impact = 324.7275 - (- 0.0300) = 324.76, i.e. what we see in the screenshot!

The very moment your position is executed, you may be able to see both Used Margin and Floating P&L (if that was the only position open) in your key indicators. Note, however, that since the price continues changing when your position is open, so do these indicators. Hence, the numbers you see may be different right away.

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