What should be the margin level in forex. Margin trading. What is the calculation of these indicators for?

The margin level, or if you prefer, the Margin Level, is considered to be trading through speculative operations involving the use of borrowed funds, when traders can enter into transactions, the size of which is many times greater than the amount of their own funds.

The pledge here is the funds that are provided to the trader by his brokerage company. Collateral, denominated in the currency of the deposit, for example, USD (US dollars), make it possible to provide this type of loan. In general, the level of margin depends directly on the traded instrument or commodity itself.

What is Forex margin level?

Margin Level, or Margin Level in the Forex market, is one of the most important concepts that a trader needs not only to familiarize with, but also to thoroughly understand its main principle of operation.

That is, the difference between margin trading and standard Forex trading is the use of large amounts of funds at the expense of a brokerage company.

What is the principle of the margin level and what does it give a trader?

Simply put, when trading on margin, you use borrowed funds to make a profit, which makes it possible to significantly increase trading volumes, and, of course, to significantly increase the size of your income.

The margin itself is the amount of the collateral, otherwise the amount of funds that must be kept on the deposit when using brokerage money.

Immediately, we note that this type of trading is available in any markets, not only on Forex, just on the stock exchange, and can reach impressive volumes. It is thanks to the possibility of conducting margin trading on Forex that ordinary traders got access to speculation in currencies through MetaTrader.

Margin trading is not possible without such a concept as the margin level.

So, the margin level is the ratio of the trader's funds to the involved margin, expressed as a percentage.

Simply put, the margin level is an indicator of the risks of open trades. The higher the margin level, the lower the risk of a Stop Out situation, respectively, the lower Margin Level increases the likelihood of closing unprofitable trader orders. At a 100% margin level, the trader's entire deposit is involved in the deals opened by the trader.

So, we come to the questions of leverage and calculating margin levels as a percentage.

Understanding and Calculating Margin in Forex

How is the Margin Level and Leverage Percentage calculated using the formula?

The concept of "margin level" is impossible without the concept of "" in trading.

Leverage, or Leverage, is the ratio of the amount of the collateral (our margin) to the amount of the trading operation.

For example, the size of this ratio 1: 100 says that to open transactions on the trader's deposit there must be an amount, say 100 times less than the amount of orders itself. Unlike a simple loan, a margin loan has the highest leverage. And here, the loan amounts actually exceed the amount of the pledged funds, which will make it possible to conduct purchase / sale transactions in increased volumes.

But at the same time, the risks of losing funds also increase, since with an increase in volumes, the volumes of collateral increase, and as a result, the load on the deposit. The formula for calculating leverage is as follows:

So, margin level is expressed as a ratio of traders' funds (Equity) to the used margin.

Each broker has its own minimum acceptable margin level. At the same time, when there is a shortage of funds on the trader's account to carry out transactions, the brokerage company notifies the client about the approach to the admissible minimum on the deposit. This phenomenon is called "Margin Call" in the Forex market. The formula for calculating the margin level looks like this:

In other words, the Margin Level is calculated by dividing the current Equity by the amount of the margin (the current amount of used margin) and multiplying the result by 100%. That is, after dividing Equity by the margin, two decimal places will be transferred to the right.

For example, a merchant using funds in the amount of 2 thousand euros and a margin of 1 thousand euros, divides 2000 by 1000 and gets the number 2... After moving 2 decimal points, the current margin level will be 200%.

As mentioned above, when the value of the margin level is equal to 100%, the market participant uses the initially allowed margin. But in order to prevent further losses, any trades made by the trader will be closed by the broker forcibly when the Margin Level reaches a certain value. If this happens, then in order to continue trading, the trader must replenish his deposit.

We calculate the correct margin level when trading

Working with the margin level in the MetaTrader terminal

The margin level is constantly displayed in MetaTrader4 in the status bar. You can see the margin size by visiting the "Terminal" → "Trade" directory. The margin level, Equity and total balance will also be displayed here.

Recall that the margin level indicates to the trader the size of the current risks, thereby making it possible to prevent them. Knowing the indicators of the margin level, you will understand whether your account has enough funds to open new orders or maintain already open trades.

In margin trading, the brokerage company acts as the one that allows Forex transactions through MetaTrader. At the same time, the brokerage companies themselves, as a rule, use the services of higher-order suppliers (banking institutions and the like).

For this reason, the larger the liquidity provider, the higher the requirements for the amount of collateral when opening a trading position will be.

So, an ordinary trader cannot get direct access to a real liquidity provider, therefore he is forced to do it using margin.

Example of calculating the margin level when trading Forex

To make it clearer, consider an example. Let's assume that you trade with a leverage of 1: 100. This ratio means that the margin requirements for opening an order will be equal to 1%. In other words, the ratio of Equity and margin will be = 1: 100.

Let us assume that under such conditions the size of the deposit is 4,000 conventional units. Using MT4, you open a position in the volume of 100 thousand conventional units, although your deposit is only 4,000. Perhaps this is due to the fact that the broker will automatically buy you 100 thousand of these conventional units using credit money and freeze 1% of them (1,000 USD .) on the account, and the rest will be left free for use.

So, margin trading is a type of profit making using leverage that increases the amount of income. At the same time, such a method of earning will allow you to make profits, having only 1% of the size of the concluded contract on the deposit.

Why should a trader know the margin level as a percentage?

Know, percentage calculation of the margin level, very important. This is necessary in order to control everything and then not be surprised for what reason the margin disappeared on Forex, and the depot is completely drained. Although each brokerage company sets its own percentage of Stop Out and that, it usually forcibly closes the orders opened by the trader when the margin level drops to 100% and below.

Immediately, we note that the number of closed positions may be equal to the total amount, but it may also happen that some of them will not be touched, that is, they will continue to work.

If we turn to the postulates of money management, then in one transaction it is not recommended to use more than 10% of the size of the deposit that at its opening will correspond to the margin level of 900%.

So, knowing what level of margin you have at the moment, you can intelligently manage funds (taking into account risks) and, as a result, get high profits, and not drain all funds from the trading account.

The concepts of "margin", "margin trading", "leverage" are familiar to many traders, even beginners. But not everyone thoroughly understands what they mean, how to use this type of trading so as not to incur losses.

In simple words, the margin is the amount of the contribution to the broker's account, which guarantees the issuance of money to the trader in debt for trading in currencies, stocks and other assets. Margin trading is a process by which investors buy more currency than they can afford with their own funds.

Previously, margin trading could be carried out within one session on the exchange. And to this day, some brokers work the old fashioned way. But over time, these conditions were relaxed. Now you can trade with borrowed funds as long as the deposit on the account covers the losses.

Trading on margin is an easy way to make more money quickly than trading small lots. With the development of electronic stock exchanges, highly specialized activities for trading currencies or stocks became available even to small retail traders. Forex margin trading helps beginners and private traders overcome the threshold for entering the market, which can be determined by tens and thousands of dollars.

As collateral for the loan are those currencies that the trader purchases, plus his contribution to the deposit account, which will cover commissions and losses, if any. Thanks to this scheme, brokers are able to issue loans tens of times more than the funds deposited into the trading account.

Earnings in Forex can be hundredths of a percent of the transaction. If you operate with small amounts, you can wait a long time for sufficient profit to accumulate. The use of borrowed funds helps to make the income from the usual trading operations in currencies more significant.

Free margin

Free margin is the amount of free funds on the account that can be used to open new positions. It is calculated as the difference between the entire available amount and the funds already reserved in open transactions.

The difference between a professional and a beginner is that a trader who has been working with Forex for a long time does not use one hundred percent margin, a significant part of the credit funds on his account is a safety net, does not participate in trading. This allows you not to reach critical points in trading, when transactions are closed automatically, saves money on commissions.

Margin display in MT4 terminal

Both the free margin and the level are shown in the terminal of the Metatrader 4 and Metatrader 5 programs. How it looks is shown in the figure. All parameters are signed, you just need to learn how to understand them with ease.

Figure 1. Parameters of free margin and margin level in Metatrader 4

This example shows that the margin level is 8425.32%. In absolute terms, this is $ 98,823.87. This amount can be used to open new transactions, it is outside the collateral on the exchange. Funds reserved in trading are $ 1,177.13, she is pledged until she exits the position.

Margin and leverage

The concept of margin is closely related to leverage, but not all traders can easily answer the question of what leverage is on the exchange.

Figure 2. Leverage and margin

The definition here is quite simple: it is the amount of lending, the amount of the broker's funds that a trader can dispose of. The higher the leverage, the less the user needs to deposit their own funds. Brokers may offer loans of different sizes. It can be the same amount that was deposited into the account, it can be 5, 10 or even 500 times more. That is, when choosing between trading platforms, you should pay attention to the size of the leverage. Let's say a trader has $ 1,000 of his own. This is what his leverage will look like on different platforms.

The total amount of the trading account is the funds available for conducting transactions, including your own money on the broker's deposit and a loan from him.

Margin is the contribution of a trader to a broker's account, which allows him to receive a certain leverage. This is the interaction of these concepts.

Margin level

It is quite easy to determine the margin level: it is automatically reflected in the trader's office. This is the percentage of borrowed funds relative to your own money. This indicator is expressed as a percentage. In the absence of not withdrawn profit and open positions, its indicator is higher than 100%.

The brokers calculate the margin independently in an automated mode. As soon as the number of open trades reaches 100% of the level, the margin call mode is activated. This means that it will not be possible to open the next positions until the funds from the previous operations are released. If for some reason the broker missed this moment or is in no hurry to close positions, and his positions are at a loss, another protective mode called "stop out" is triggered. The broker begins to close positions one by one, starting with the most unprofitable of them.

Forex margin can only be zero or positive. Negative values ​​are not allowed to avoid losses for the broker itself. What does this mean?

• If, with a leverage of 1:10, 10,000 units of equity are involved instead of 1,000 units, then more than 10,000 units will not be able to open positions.
• The system will automatically close deals at the slightest excess of the leverage. The losses in this case can be purely symbolic.

In essence, this is an automated exit from trades that begin to show losses. In this way, the broker protects both himself and the trader from excessive losses. If there was a small loss at the time of closing the transaction, it is compensated from the user's collateral.

Figure 3. General formula for calculating margin

Calculate Forex Margin

The brokers calculate the margin automatically. A trader only needs to know the basics of such calculations, he won't have to sit with a calculator.

The main task in calculating the margin is to determine how much money in the account currency will be spent on making a deal in a different type of currency pair. Simply put, if a margin of $ 1,000 with a leverage of 1: 100 gives a trading account balance of $ 100,000, then you need to understand how much money will go as a pledge of a transaction when buying euros, rubles, Japanese yen and other units.

It is important not to confuse margin and profitability. Margin is the percentage of the trader's own funds in the total volume of the transaction. The higher the leverage, the lower this indicator. Return on margin is the percentage of income left after all costs. Let's look at specific numbers.

• Let's say, having made a deal for 1000 dollars, the trader earned 10 dollars of net profit. Not all of these funds will be credited to his trading account.
• Suppose he gave $ 7.5 dollars for leverage and commission. The profitability of the deal will be 0.25%, that is, $ 2.5.
• If another broker's service tariffs are such that after a similar transaction there is $ 5 left, then its profitability will be at the level of 0.5%, twice as much.
• Take as an example the fact that the margin (equity) was $ 100, and the leverage was 1:10, the profit margin for the trader would be 2.5% for the first broker and 5% for the second.

By independently calculating the profitability of the margin for different brokers, with different leverage, you can understand which trading strategies are more profitable.

Figure 4. Calculator for calculating the margin

Conclusion

Trading currencies in the Forex market involves the use of different strategies. There can be no general recommendations regarding the use of leverage.

• Some traders borrow a lot of money and spin it at maximum speed, making many quick transactions, they earn a small percentage. But due to the large turnover of funds in absolute terms, the amount is solid.
• Other traders hold positions for several days, receive good interest rates and actively use leverage, sharing income with a broker.
• Third traders prefer the most profitable trades, wait for good moments, enter positions using leverage, and exit quickly. The profit made quickly has to be shared with the broker, but it is much higher than what could have been when using only your own funds.

It is not so important which strategy a particular trader follows. The main thing is that he, at the level of intuition, knows how to determine when to exit positions in order to prevent “stop out” and other critical actions. And when is it better to replenish the deposit account, but wait a little in order to sell the position at a higher price.

Collateral (Margin) is the amount for which brokerage firms provide loans for foreign exchange investor contracts in the Forex market. In addition, the margin indicates the cost of the allocated loan and reflects the possible profit of the brokerage organization from the contracts concluded on the client's deposit.

As a rule, margin characterizes profit. In addition, a term such as margin is used in the exchange, trading, insurance and banking activities directly to show the difference between the cost of acquisition and the cost of selling goods, exchange rates, interest rates on loans and insurance instruments, as well as other indicators.

Directly for the Forex exchange, the margin characterizes the obligatory collateral made by a foreign exchange investor from his account when concluding a contract for the purchase or sale of currency.

This collateral ensures the possibility of obtaining a short-term loan from the brokerage company. The specificity of the margin is that the market investor receives a loan only for speculative currency contracts. In the event that the trader loses the contract and for this reason cannot return the borrowed funds, the brokerage company writes off the entire amount of the margin as compensation.

Margin is a direct consequence of the conditions of lending to a market investor: the amount of the collateral depends on the size of the leverage (simply put, the volume of the loan provided to conclude contracts). This collateral also provides profit to the brokerage office. This profit does not depend on the result of the trader himself.
The thing is that while a trader sells or buys currency in Forex, a record of the amount of margin (or collateral) for the operation being carried out is displayed on his account in the trading terminal. In the event that a market player loses the contract and leaves at a loss, then the margin goes to the dealing center as a guarantor of his loan - after all, the dealing center provided the currency speculator with borrowed funds to conclude contracts, and such a service must be paid regardless of how successful the market is. the player was able to take advantage of this loan.

Example of calculating margin

In order to calculate the margin or collateral for a contract, you should know the following information:

A pair of currencies for which contracts are concluded - for example, Euro for US Dollar.

The current exchange rate is, for example, 1.33 euros to one dollar.

The volume of a foreign exchange transaction - let's say 1000 euros or 0.01 lot.

The leverage provided by your broker is about 1 in 500 for minor deposits.

Let's find the amount of margin in Forex using the formula below:

Trade Size / Leverage x Current Rate = 0.01 lot / 500 x 1.33 = 1000/500 x 1.33 = $ 2.66.

It should be noted that for a more accurate calculation of the amount of collateral or margin for your contract, you must use specialized calculators that are available on the websites of brokerage organizations.

Thus, in the event of a loss, this part of your contract will be transferred as margin to the brokerage office. Try to treat your margin as a security deposit in case your contract fails.

In general, the collateral is not for the market investor. After all, its main role is precisely to broaden the trader's horizons a little and show what probable income the brokerage company will receive from your foreign exchange operations. It is no coincidence that such a term as margin is usually used as a synonym for profit. The trading terminal shows the margin for reference only, because it is much more important for a market player to track such indicators as Equity and Equity (not borrowed funds).

Today you will understand how to understand the balance values ​​in MetaTrader 4 and 5 with open trades. you need to know well before the start of the auction. This will help to avoid many misunderstandings and deposit leaks.

When a deal is opened in MetaTrader, there are many different values ​​in the balance line, let's analyze each of them.

Indicator "Balance" in Metatrader

(Balance) Is the amount of money currently on the deposit. The balance is the actual value if the trader does not open any trading position. That is, if a trader replenished an account with $ 100 and did not perform any operations, then his balance should be $ 100. If he closed the trade with a profit of $ 5, then the balance will be $ 105.

When a trader has one or several positions open, the “Balance” indicator loses its relevance, and the potential state of money must be monitored by the “Equity” indicator.

Indicator "Funds"

Funds, or Equity- this is the current state of the balance, if you close absolutely all transactions right now. That is, the difference between funds and balance is the profit / loss from open positions.

During trading, the numbers in the "Funds" column are constantly in a "floating" state, since the market conditions change every second.

For example, if the balance is the same $ 100, and the profit on open trades is $ 5, then the "Equity" column will contain the number 105. However, in the next seconds, this figure can both increase and decrease, depending on how the quotes for open deals change.

What does the Margin (Collateral) indicator mean in simple words?

Having learned the two main indicators of the state of the trading account, you can smoothly move on to what is the margin on Forex.

So, if in the world of business, margin means the difference between price and cost (analogous to profit), then in trading this term has a completely different meaning. Most Forex traders trade using leverage to maximize potential profitability.

Leverage- these are credit funds provided by a broker to a trader to carry out transactions exceeding the trader's funds in volume.

Leverage, or Leverage, is determined by the number of borrowed dollars for every dollar in the trader's account. The most commonly used leverage is 1: 100, but there are also 1:50, 1: 200, 1: 500, 1: 1000 and even 1: 2000.

If we consider the standard leverage of 1 to 100, then the trade looks like this: a trader, having $ 100 on his account, can make deals up to $ 10,000, leaving his money as collateral with the broker.

If we simplify the numbers for ease of perception, then without leverage, with a balance of $ 100, a trader cannot buy even one ounce of gold, which costs, for example, $ 1,200, while with a leverage of 1: 100, he can buy as many as 8 ounces. ... Not only does leverage provide access to high-value trading, but it also increases the potential return on investment due to the higher trading volume.

Margin in the Forex market is a collateral that a trader leaves to a broker as security for leverage. By the way, trading using leverage is called, and it is widely used not only in the Forex market, but also on the largest exchanges.

What happens if the free margin is in the red?

The fact is that when a certain ratio of funds to margin is reached, the broker will forcibly close all open positions. Therefore, it is very important to monitor the free margin indicator so as not to open too many trades or trades for large volumes, without allowing yourself a step back. Any deal can temporarily go into a negative, this is what free funds are needed, if they are not available, then all transactions will be closed automatically at a loss, and you will lose all funds.

What is the margin level in an open trade

Along with the free margin, the margin level is an important indicator. It shows the ratio of equity to margin. Many traders are interested in what the recommended margin level should be maintained. In fact, there is no one-size-fits-all recipe; every trader maintains the level of margin that he considers safe.

There is a general rule of money management, following which the sum of all open positions should not exceed 10% of the deposit, that is, the margin level should be 1,000%.

At the same time, each broker has certain conditions for maintaining the margin level, that is, at a certain level (often equal to 50%), the broker will forcibly close the trader's position and fix the result.

The margin level is calculated as a percentage. The calculation is carried out according to the formula:

Equity / margin * 100%.

For example, if your equity is $ 1,000 and you open a trade with a $ 100 margin, the margin level is 1,000%. The higher this indicator, the more the deposit is protected from forced closing of deals by the broker.

If open positions become unprofitable, then the amount in the "Equity" field decreases, therefore, the margin level falls.

Forex trading is accompanied by an increased level of risk. The risk is partly due to market factors, but mostly inexperienced traders lose their deposits due to high leverage trading.

Leverage of 1 to 100 can increase both gains and losses from trading by a factor of 100. Moreover, it is very easy to drain the first deposit if you do not follow the recommendations of more experienced traders:

1. Do not open positions for the entire deposit... In the description of free margin, the term Stop Out was used. This is a situation when the broker forcibly closes all the trader's positions, since the margin level has dropped to a certain level. Some brokers set this level at around 20%, some - 50%. In any case, this is done in order to reduce the trader's losses from unsuccessful trades. If the deposit is $ 100, and all of it is transferred as collateral at a leverage of 1 to 100, then the asset price needs to move only one percentage point in the wrong direction for the deposit to be completely drained. Of course, Stop Out will prevent this (if it is not set at 0%), but not a single trader will like to quickly lose even half of the deposit. It is best, especially at first, to use no more than 10% of your deposit.
2. Don't use a lot of leverage... You should not start trading with a leverage of 1 to 1000, because this is fraught with large and immediate losses. Of course, the prospects for large profits are dazzling, but for novice traders, the reality of the forex market is harsher. It is best to start with leverage of 1 in 50 or 1 in 100.
3. Do not risk a significant amount for yourself... A person is always afraid to lose, but there is a difference to lose 10 or 100 dollars. It should be understood that profitable trading at the initial stage is the exception rather than the rule. Therefore, the first deposit should be viewed as a contribution to your financial education, and not as an initial capital for real trading. And in order to understand how the market works, what functions the terminals have and what the price of certain assets depends on, a large deposit is not needed.

Best FOREX brokers

• Alpari
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Now, when the words "Margin", "Margin Level" and "Free Margin" do not cause confusion, you can safely open deals without fear for incomprehensible numbers in the balance line.

If you find an error, please select a piece of text and press Ctrl + Enter.

Making a profit is the goal of any commercial enterprise. To increase it, you need to have an idea of ​​the margin and marginality. After all, it is their correct definition that will help to understand in which direction the enterprise should move - to reduce costs or increase the cost of goods. And such an understanding will help the investor to determine the directions of his financial investments.

What is it in simple words

Marginality is one of the main concepts in business, stock exchange and banking. It means the difference between the cost of production (the cost of manufacturing it) and the price paid by the buyer. It is not for nothing that the word "margin" in translation means "margin".

Also, marginality often means the profit from each unit of production and the profitability ratio. The latter helps to determine the success of any enterprise.

Video: marginality is in simple words:

Therefore, knowledge of the concept of "marginality" is necessary for successful business. After all, even setting a high price for a product does not guarantee a high profit. To do this, you must also take into account the costs incurred. That is why it is necessary to be able to correctly calculate the margin. In simple terms, margin is what you get in excess of your profits. In other words, this is net revenue..

It is important for a novice businessman to remember products with high margins. They have a high level of demand and are always in demand in the market, since, as a rule, they are represented by only one or several sellers. This allows the manufacturer to get more profit from their sale. High-margin products include the following:

• seasonal products, usually sold on specific dates;
• branded products.

Examples of products with a high level of margin are: flowers, non-alcoholic products, hand-made, elite alcohol, expensive teas and coffee ...

High margin products

According to a survey of retailers, the highest margin products are:

1. Non-alcoholic products... This category of goods has the highest mark-up. Indeed, the production costs of these products are minimal and prices are kept high. This is achieved mainly through a successful advertising campaign and promotion of a certain lifestyle, which effectively affects the target audience - adolescents and young people. This primarily applies to carbonated drinks. However, simple drinking water does not lag behind either. Especially the margin increases when it is sold at resorts. Baby water is the most profitable product in this category.
2. Flowers... The margin of this product also depends on the season. By certain dates (March 8, February 14), the price of these goods rises several times.
3. Handmade goods... Only the author of such a product has an idea of ​​its actual value. Due to its uniqueness, the price can rise significantly.
4. Festive symbols... Many buyers cannot do without certain attributes during the holiday. These include, for example, fancy hats, cake candles, balloons, postcards, etc. The population strongly associates these goods with the holiday. The costs of making them are negligible and incomparable with the high prices for them in stores.
5. Bijouterie... This product is in great demand because it does not cost as much as jewelry made from real gemstones. Since cheap non-natural materials are used to make jewelry, the cost of such products is relatively low.

It will not hurt to get acquainted with this list of products with a high level of marginality for aspiring entrepreneurs in order to correctly determine their niche in the market.

In business

The concept of business margin is closely related to the concept of product margin. The latter is a broader term. It means the ability of a business to bring its owners a net return on invested capital per year. The indicator is measured in percent.

Let's give an example. Let's say an entrepreneur has invested 1 million rubles in a business. A year later, the amount of net profit amounted to 200 thousand rubles. To calculate the business margin, or rate of return, divide the net profit by the amount invested. We get 20%.

Knowledge of this concept is necessary not so much for business founders as for investors. For a successful investment, it is advisable to assess not only the marginality of the business as a whole, but also of its individual projects. The highest margin business, especially in Russia, is trade.

In banking

The concept of marginality is also central to the banking business. In particular, it is especially important to determine the interest margin. It is the difference between the interest received and paid. In other words, between the interest received from borrowers and the interest paid to lenders. Therefore, the bank needs to correctly set interest rates on loans and deposits in order to have a sufficiently high interest margin. Accordingly, if the bank lowered interest rates on loans, it will also lower the profitability of deposits so that the interest margin does not decrease. And vice versa.

What is the calculation of these indicators for?

The marginality is of interest to the following categories of businessmen:

• business owners;
• investors.

Investors need it, first of all, in order to determine which business is preferable to invest in in order to get a great return. Before starting a new business, you should define a niche. For a business to be successful, it is necessary to choose the highest-margin business areas. Therefore, the first thing that a future business owner does is calculate the marginality indicators of the business of interest to him in general and goods in particular.

How to calculate marginality: calculation formula

In monetary terms

In absolute or monetary terms, the sales margin is equal to the markup and is calculated using the following formula:

M = CG - C ,

where M is the margin;

CP - the price of the goods;

С - cost price.

M = sales revenue - variable costs

In percentages

M = (CG - C) / CG x 100

Let's give an illustrative example of calculating the marginality of sales of the fictional company "Vasilek". To do this, we need data from the profit and loss statement. Data are given in thousand rubles.

Index	Period
	2017	2018
Sales	190 000	200 000
Cost of products sold	160 000	180 000
Gross profit	20 000	40 000
Commercial expenses	19 000	30 000
Revenue from sales	900	2 000
Percentage to be paid
Other income	40	900
other expenses	-80	-1 000
Profit before tax	850	1900
Tax	-100	-500
Income after tax	700	1700

The data required for the calculation are highlighted in yellow.

It turns out, the sales margin of the Vasilek company for 2017 is 15.8% (190,000 - 160,000) / 190,000.

Difference between marginality and mark-up

After studying the presented material, an erroneous opinion about the identity of the concepts "margin" and "mark-up" could have formed. Of course, these terms have many similarities, but they also have significant differences. So, margin is a measure of income after deducting mandatory costs. And the markup represents the added price of the item.

They also differ in calculation methods. So, the calculation of the margin depends on the total profit of the firm. And the calculation of the margin value depends on the original cost of the product.

The margin and mark-up are calculated using different formulas. First, let's give the formula for calculating the margin:

Margin = (Selling Price - Cost) / Selling Price x 100

In turn, the markup formula looks like this:

Margin = (Selling Price - Cost) / Cost x 100

Thus, they differ only in the denominator. Moreover, if we calculate the markup and margin in absolute terms, then they will have the same value. They will differ only in relative terms. In this case, the margin will exceed the margin.

Let's take a simple example. Let's say a certain product costs 10 rubles, its cost is 9 rubles. The markup and margin will be 10 - 9 = 1 (ruble). In relative terms, they will differ: the margin will be 1/9 = 11.11%, the margin is 1/10 = 10%

Another difference between margin and markup is that the margin can never be 100%. This is because the cost cannot be zero. And the extra charge can.

Margin and mark-up are needed to track changes in the situation over time. At the same time, the markup and marginality are directly proportional to each other: the higher the markup, the greater the marginality. From this we can conclude that in order to get more profit, you should raise the margin.

With the help of markups and margins, you can track how the situation changes over time. The higher the markup level, the higher the marginality. It follows from this that in order to increase profits and develop a business, it is necessary to increase the markup on the product.

Another concept that should be introduced in this topic is gross margin... It should not be confused with margin and mark-up. Gross margin is the percentage of total revenue after deducting direct costs (which are associated with the production of goods and the provision of services).

By itself, gross margin does not in any way characterize the financial condition of a company. In this we will be helped by such an indicator as the gross margin ratio (KVM). With its help, you can track the dynamics of the company's economic efficiency, as well as correlate this indicator with competitors. The formula is presented as follows:

KVM = VM / BP ,

where VM is the gross margin;

ВР - proceeds from product sales.

This indicator is also needed to calculate the break-even point and the strength of the operating leverage.

Determining the break-even point

For more informational content, in addition to the marginality indicators, the break-even point should also be calculated. It shows a situation when an enterprise pays for all production costs without making a profit.

The definition of the break-even point is clearly shown in the figure.

Judging by the figure, the break-even point is at the intersection of the revenue and gross cost lines and equals 40% of the sales volume. Those. the company will reach a break-even point when 40% of the goods are sold.

Thus, the calculation of marginality (margin) is necessary to assess the financial condition of an enterprise, successful business, comparability of results with competitors.

Video - the difference between margin and markup: