I have read everywhere that margin and margin calls are based on account equity rather than balance. So i have 2 questions:
1) your account balance is $500. you buy and sell 1 lot eur/usd i.e you are hedged. Your equity will not fluctuate now as a 1 pip loss on one trade is a 1 pip gain on the other. Now the EurUsd rises 500 pips. The buy trade is in profit by 500 pips, the sell trade in loss by 500 pips. The equity is still the same. However, the sell trade is in a loss by $5000, an amount that exceeds the initial account balance. Obviously you can't be in negative balance, but the broker shouldn't issue a margin call as equity is not low due to the other trade? What am i missing?
2) lets say your account balance is $1000 and you open a buy position and it goes into profit by $1000. Even though you have not liquidated your position, could you now open another buy trade for $1000? Because the Equity has increased even though balance has not.
Dek
1) your account balance is $500. you buy and sell 1 lot eur/usd i.e you are hedged. Your equity will not fluctuate now as a 1 pip loss on one trade is a 1 pip gain on the other. Now the EurUsd rises 500 pips. The buy trade is in profit by 500 pips, the sell trade in loss by 500 pips. The equity is still the same. However, the sell trade is in a loss by $5000, an amount that exceeds the initial account balance. Obviously you can't be in negative balance, but the broker shouldn't issue a margin call as equity is not low due to the other trade? What am i missing?
2) lets say your account balance is $1000 and you open a buy position and it goes into profit by $1000. Even though you have not liquidated your position, could you now open another buy trade for $1000? Because the Equity has increased even though balance has not.
Dek