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Oct 295 min read

Trading Scenario: What Happens If You Trade With Just $100?

Updated: Nov 1


Level-1 Module-6 Chapter-13


🥇 FREE Gold Crypto Forex Trading Signals Telegram Channel: @K9_Investments_GoldTrading


Are you considering opening a trading account with just $100? 🤔 While margin trading allows for such a low entry point, it raises significant questions about risk and strategy. In this article, we’ll explore what can happen when you start trading with a modest deposit, using a detailed example that showcases the concepts of margin calls and stop-out levels.


What Are Margin Calls and Stop-Out Levels?

Before diving into our example, let’s clarify two crucial terms: Margin Call Level and Stop-Out Level.

  • Margin Call Level: This is the threshold at which your broker will alert you that your account equity has dropped to a point that requires immediate action—typically set at 100%.


  • Stop-Out Level: This is the point at which your broker will automatically close your positions to prevent further losses, often set at a lower percentage, such as 20%.

If you’re unfamiliar with these concepts, we recommend checking out our previous lessons on Margin Call and Stop Out Levels. Understanding these fundamentals is essential for anyone looking to trade in the Forex market.


Step 1: Deposit Funds into Your Trading Account

Let’s assume you’re feeling confident and decide to deposit $100 into your trading account. This gives you a balance of $100.

Here’s a snapshot of how your trading account looks at this stage:


Metric

Value

Long / Short


FX Pair


Position Size


Entry Price


Current Price


Margin Level


Equity

$100

Used Margin


Free Margin


Balance

$100

Floating P/L



Step 2: Calculate Required Margin

Now, let’s say you want to go short on EUR/USD at an entry price of 1.20000. You plan to open a position of 5 micro lots (1,000 units x 5).

With a margin requirement of 1%, we need to determine the required margin.


  1. Calculate Notional Value:The notional value of the trade is calculated as follows:

    Notional Value=Position Size×Current Price=5×1,000×1.20000=$6,000\text{Notional Value} = \text{Position Size} \times \text{Current Price} = 5 \times 1,000 \times 1.20000 = \$6,000Notional Value=Position Size×Current Price=5×1,000×1.20000=$6,000


  2. Calculate Required Margin:With a margin requirement of 1%, the required margin will be:

    Required Margin=Notional Value×Margin Requirement=6,000×0.01=$60\text{Required Margin} = \text{Notional Value} \times \text{Margin Requirement} = 6,000 \times 0.01 = \$60Required Margin=Notional Value×Margin Requirement=6,000×0.01=$60


Step 3: Calculate Used Margin

Since you only have one position open, the Used Margin will equal the Required Margin of $60.


Step 4: Calculate Equity

Assuming the price has moved slightly in your favor and your position is now at breakeven (floating P/L of $0), your equity remains at $100.


Step 5: Calculate Free Margin

Now, let’s calculate the Free Margin:

Free Margin=Equity−Used Margin=100−60=$40\text{Free Margin} = \text{Equity} - \text{Used Margin} = 100 - 60 = \$40Free Margin=Equity−Used Margin=100−60=$40


Step 6: Calculate Margin Level

The Margin Level can now be calculated as:

Margin Level=(EquityUsed Margin)×100=(10060)×100=166.67%\text{Margin Level} = \left( \frac{\text{Equity}}{\text{Used Margin}} \right) \times 100 = \left( \frac{100}{60} \right) \times 100 = 166.67\%Margin Level=(Used MarginEquity​)×100=(60100)×100=166.67%

At this point, your account metrics look like this:

Metric

Value

Margin Level

166.67%

Equity

$100

Used Margin

$60

Free Margin

$40

Balance

$100

Floating P/L

$0


The Situation Changes: EUR/USD Rises 80 Pips

Let’s assume the market turns against you, and EUR/USD rises by 80 pips to 1.2080. How does this affect your account?


  1. Used Margin:The notional value now needs to be recalculated based on the new price:

    New Notional Value=5×1,000×1.2080=$6,040\text{New Notional Value} = 5 \times 1,000 \times 1.2080 = \$6,040New Notional Value=5×1,000×1.2080=$6,040

    Required margin at the new price:

    New Required Margin=6,040×0.01=$60.40\text{New Required Margin} = 6,040 \times 0.01 = \$60.40New Required Margin=6,040×0.01=$60.40

    So, your Used Margin is now $60.40.

  2. Floating P/L:You are in a short position, so a rise means a floating loss:

    Floating Loss=80 pips×0.10×5=−$40\text{Floating Loss} = 80 \text{ pips} \times 0.10 \times 5 = -\$40Floating Loss=80 pips×0.10×5=−$40


  3. Equity:Your equity after the floating loss is now:

    Equity=100−40=$60\text{Equity} = 100 - 40 = \$60Equity=100−40=$60


  4. Free Margin:Your free margin calculation:

    Free Margin=60−60.40=−$0.40\text{Free Margin} = 60 - 60.40 = -\$0.40Free Margin=60−60.40=−$0.40


  5. Margin Level:The margin level drops:

    Margin Level=(6060.40)×100=99.34%\text{Margin Level} = \left( \frac{60}{60.40} \right) \times 100 = 99.34\%Margin Level=(60.4060​)×100=99.34%


Now your account metrics would look like this:

Metric

Value

Margin Level

99.34%

Equity

$60

Used Margin

$60.40

Free Margin

-$0.40

Balance

$100

Floating P/L

-$40

You are now below the Margin Call Level of 100%, which means you’ll receive a warning from your broker. Your positions remain open, but you cannot open new ones unless the margin level increases.


Further Decline: EUR/USD Rises Another 96 Pips

Now let’s say EUR/USD climbs an additional 96 pips, reaching 1.2176.


  1. New Used Margin:

    New Notional Value=5×1,000×1.2176=$6,088\text{New Notional Value} = 5 \times 1,000 \times 1.2176 = \$6,088New Notional Value=5×1,000×1.2176=$6,088

    Required margin:

    New Required Margin=6,088×0.01=$60.88\text{New Required Margin} = 6,088 \times 0.01 = \$60.88New Required Margin=6,088×0.01=$60.88


  2. New Floating P/L:

    Floating Loss=176 pips×0.10×5=−$88\text{Floating Loss} = 176 \text{ pips} \times 0.10 \times 5 = -\$88Floating Loss=176 pips×0.10×5=−$88


  3. New Equity:

    Equity=100−88=$12\text{Equity} = 100 - 88 = \$12Equity=100−88=$12


  4. New Free Margin:

    Free Margin=12−60.88=−$48.88\text{Free Margin} = 12 - 60.88 = -\$48.88Free Margin=12−60.88=−$48.88


  5. New Margin Level:

    Margin Level=(1260.88)×100=19.7%\text{Margin Level} = \left( \frac{12}{60.88} \right) \times 100 = 19.7\%Margin Level=(60.8812​)×100=19.7%

At this point, your account metrics are:

Metric

Value

Margin Level

19.7%

Equity

$12

Used Margin

$60.88

Free Margin

-$48.88

Balance

$100

Floating P/L

-$88


What Happens Next? Stop Out!

With your margin level now below the Stop-Out Level of 20%, your broker will automatically close your position to prevent further losses. Here’s what happens:

  • Your used margin is released.

  • Your floating loss is realized.

Now your account is flat, with metrics like:

Metric

Value

Margin Level

N/A

Equity

$12

Used Margin

$0

Free Margin

$12

Balance

$12

Floating P/L

$0

Conclusion

Starting your trading journey with a $100 deposit can be tempting, but as we’ve demonstrated, the risks are substantial. In this scenario, you lost 88% of your capital after a relatively small price movement in EUR/USD.


Trading with such a low capital amount can lead to rapid account depletion, particularly in volatile markets. Always consider your risk management strategies and be prepared for potential losses.


For more insights, strategies, and the latest updates on trading, join our FREE Gold Crypto Forex Trading Signals Telegram Channel: @K9_Investments_GoldTrading. Happy trading! 🚀


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1. Why is K9 Investments the Best Signal Provider?

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3. How Can I Start My Forex, Gold, or Crypto Trading Journey?

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