MCCs on Margin and Margin Call
1. What is margin in forex trading?
A) The total value of the trade
B) The amount of money required to open a leveraged position
C) The profit made from a trade
D) The number of pips gained or lost
Answer: B) The amount of money required to open a leveraged position
2. What is the purpose of using margin in forex trading?
A) To reduce transaction costs
B) To increase potential profit by controlling a larger position
C) To eliminate risks completely
D) To convert currencies
Answer: B) To increase potential profit by controlling a larger position
3. What does a margin call indicate?
A) You have reached your profit target
B) You need to deposit more funds to maintain your open positions
C) Your trading account has been closed
D) You have successfully executed a trade
Answer: B) You need to deposit more funds to maintain your open positions
4. What can trigger a margin call?
A) Increase in account balance
B) Decrease in equity due to losses
C) Successful trade execution
D) Change in leverage ratio
Answer: B) Decrease in equity due to losses
5. What happens if you do not respond to a margin call?
A) Your account will be credited with more funds
B) Your broker may close your open positions to limit losses
C) You will receive a warning
D) You will earn interest on your margin
Answer: B) Your broker may close your open positions to limit losses
6. What is the margin level?
A) The total equity in a trading account
B) The percentage of equity relative to margin used
C) The maximum amount of leverage allowed
D) The total amount of money invested in the market
Answer: B) The percentage of equity relative to margin used
7. How is the margin level calculated?
A) (Margin Used / Total Equity) x 100
B) (Total Equity / Margin Used) x 100
C) (Total Margin / Total Investment) x 100
D) (Profit / Loss) x 100
Answer: A) (Margin Used / Total Equity) x 100
8. What is the effect of high leverage on margin?
A) It decreases the required margin
B) It increases the required margin
C) It has no effect on margin
D) It eliminates the need for margin
Answer: A) It decreases the required margin
9. What does it mean if a trader has a 50% margin level?
A) The trader has doubled their initial investment
B) The trader is at risk of a margin call if losses continue
C) The trader’s account is in profit
D) The trader has no open positions
Answer: B) The trader is at risk of a margin call if losses continue
10. Which of the following statements about margin is true?
A) Margin is a guarantee against losses
B) Margin must always be paid in cash
C) Margin allows traders to open larger positions than their account balance
D) Margin is the same as the total account balance
Answer: C) Margin allows traders to open larger positions than their account balance