The term margin is used in trade, stock exchange, insurance and banking practice to denote the difference between the prices of goods, shares, interest rates. This is analogous to the concept of profit.
Trading margin
The margin can be expressed both in absolute value (in rubles) and as a percentage (as a coefficient of profitability). In the latter case, it is calculated as the ratio of profit (the difference between price and cost) to price. It is worth distinguishing between margin and trade margin. The latter represents the ratio of the difference between price and cost to cost.
In absolute terms, margin is the difference between the selling price and the cost price.
Margin = ((price - prime cost) / price) * 100%.
Margin is a key factor in pricing analysis, marketing spend efficiency, customer profitability. Often the analysis of the company's activities is based on the gross margin indicator. It is calculated as the difference between the company's revenue and the variable costs of selling products.
Gross Margin = Sales Revenue - Variable Cost of Manufacturing.
The size of the gross margin determines the net profit from which the development funds are formed.
In Europe, gross margin is understood somewhat differently - as a percentage of gross sales revenue that a company retains after direct production costs incurred.
There is also the concept of "profit margin", which means the share of profit in revenue or return on sales.
Margin in exchange activities
In exchange activities, margin (Margin) is a collateral that makes it possible to obtain a cash (commodity) loan for speculative transactions in margin trading. It is usually expressed as a percentage of the collateral to the amount of the transaction.
In Forex, margin is the security deposit required to open positions. For example, if the leverage is 1:20, for a purchase of $ 100,000, the balance on the brokerage account must be at least $ 5,000. The higher the leverage, the lower the margin (collateral).
Banking margin
The margin is subdivided into credit, bank, guarantee. Credit margin means the difference between the real value of the goods and the amount handed over to the borrower.
Bank margin is defined as the difference between lending and deposit rates. Also, to assess the profitability of the bank, the net interest margin is used - this is the difference between the bank's interest income from lending and investment projects and the rate paid on capital and liabilities. This indicator allows you to draw conclusions regarding the efficiency of capital investment.
With regard to a collateralized loan, the guarantee margin is calculated - the difference between the value of the collateral and the size of the loan.
