Margin - what is it. How it helps to effectively run a business and make money on Forex. What is Through Margin

Hello! In this article, we will talk about margin.

To assess the performance of a company, analysts look at different indicators. By analyzing a lot of numbers, they understand where there are some problems, what needs to be paid attention to, and what works as it should. One of these indicators is the margin. In this article, I will talk in simple terms about what margin is, what types it has, and how this concept is interpreted in different niches.

What is margin in simple words

Margin is the difference between the purchase price and the sale price of any product. This difference can be absolute (in rubles, dollars) or relative (as a percentage).

The concept of margin is used in areas related to the economy. Most often this word is used:

In ordinary trade;
In stock speculation;
When calculating banking transactions.

Different niches have their own margin requirements. In trade, for example, it is 30%. In production, the figure is noticeably lower - 20%. In exchange trading, in general, the indicator can range from 1 to 5%, depending on the conditions.

How is margin different from profit and markup?

Now about the differences between margin, profit and markup. Let's deal with the first two. Margin is the difference between the purchase price of a product and the sale price. You can also say that it is income. Profit is the result of all operations. A company can have several types of activities from which the margin will be calculated, and the financial result, that is, profit or loss, will be one.

Now let's move on to the markup. Margin - the ratio of the product to the price for which we sold it. Margin is the ratio of income to the price of a product. The easiest way to understand this is with a formula. We bought a product for 100 rubles. After that, they sold it for 200. Markup = 200/100 = 100%. Margin = (200-100)/200=50%.

The margin on some goods can be 200 or 300%. But the margin can never exceed 100%.

Margin types

The term "margin" has several definitions. Let's take a closer look at each of them.

Gross margin

Gross margin is the difference between a company's variable costs and total revenue. Variable costs include raw materials, energy costs, salaries, and components.

This is one of the calculated indicators, which is used to evaluate the effectiveness of the company's actions. By itself, the gross margin indicator provides practically no information, since any organization also has fixed costs that do not depend on the number of products. And they also need to be taken into account. Therefore, gross margin is only used in conjunction with other performance measures.

Gross margin covers the main costs of the company and creates a profit for it.

Profit margin (net margin)

Profit Margin- the ratio of revenue to net profit.

The indicator shows how much net income we receive from each ruble of revenue. Profit margin is used to compare businesses in the same industries. If one company has a higher profit margin than another, then the first one uses its resources more rationally.

Bank interest margin

Bank interest margin- the ratio between interest rates on and loans. If a credit institution receives its money abroad, but issues loans from us, then the interest margin is the difference between the lending rate in a foreign bank and the lending rate on a domestic loan.

Bank interest margin is one of the main performance indicators of the bank. Most of the profits of credit organizations receive precisely at the expense of loans. This means that the cheaper they receive money and the more expensive they give, the better they work.

Guarantee margin

Guarantee margin- the minimum amount of money on the investor's account so that he can trade.

Most traders who speculate do not trade only with their own funds. Often they also take money from them to increase their profits. This is called margin trading, or trading with leverage.

Another guarantee margin is the difference between the value of the collateral and the amount of the loan.

Banks are very fond of giving loans secured by something. But they not only deliberately underestimate the amount of collateral, but also issue a loan for less money. This is done in order to sell the collateral on the market as quickly as possible and receive the missing amount for the loan.

Solvency margin

Solvency margin- the ratio of the insurer's assets and its liabilities.

The indicator is used in calculating the performance of insurance companies. Assets of the insurer - money received for insurance + equity of the company. Liabilities - the sum of all insurance contracts.

Front Margin

Front Margin- the difference between income and cost of goods.

The concept of front margin is used in trading when it is necessary to calculate how much profit you will receive for each sale. In retail, the figure ranges between 10 and 40%, depending on the niche. In supermarkets - 30-35%, and in small shops - 20-28%.

Back margin

Back margin- all bonuses that the trading company receives from suppliers.

As bonuses for calculation can be:

Penalties for non-compliance with the terms of the contract.
Charges for the sale of goods.
Contributions for participating in a marketing campaign.

By law, the amount of bonuses received by the store from suppliers cannot exceed 5% of the value of the delivered goods.

Free Margin

Free Margin- funds that the trader does not use to secure transactions and which can be traded.

Trading with leverage on exchanges is a frequent occurrence. So that the trader can pay the debt if he has problems with the exchange rate, the broker chooses the “collateral amount” - the level of the asset, upon reaching which the trader goes into negative territory on the personal account, all assets are sold, and money is debited from the account.

To avoid this, traders put a stop line, upon reaching which the assets are sold. The stop line is usually at 20-30% of the current value. And to ensure this line, all the money in the account is not needed. So, you can also trade on the rest. And this remaining money is called free margin.

Variation margin

Variation margin- this is the amount that the trader will receive from each change in the value of the futures on the exchange.

This is the main indicator of changes in the value of futures. If the variation margin is positive, it means that the trader, following the results of the trading session, made a profit, if it is negative, it means a loss that the clearing company will write off from him.

Trading Margin

Now let's talk about the most popular niches in which the term "Margin" is used. Let's start with trading.

What it is

Margin in trading business- the ratio of the purchase price of goods to the sale price.

How to count

Margin = cost of item x quantity of item sold - cost per item x quantity of item.

And so for each product. Consider a specific example:

We have 20 chairs that we bought for 500 rubles. We sold 18 pieces for 750 rubles. Margin \u003d 18x750-20x500 \u003d 3500 rubles.

Why do you need

Margin in trading is needed to calculate income and analyze the effectiveness of trading. Each niche has an average margin. To compare how efficiently a store works, you need to determine the margin indicator. If it is below average, then something can be done better.

Banking Margin

Banking Margin is a broader concept. This is the difference between:

credit and deposit interest rates (bank interest margin);
lending rates for individual borrowers;
interest rates on active and passive operations.

Bank interest margin is used to analyze the efficiency of the bank. The average level of BPM in the global economy is 3.2-4.6%. In Russia, this figure is much higher - 6%.

Investment Margin

The concept of margin is applied in two areas. First area:

Safety margin- the price level chosen by the investor to buy shares.

Simply put, it is the percentage of the real value of a security at which you can buy it. Let's look at an example:

You understand that the shares are really worth $100. Your margin of safety is 50%. As soon as the stock drops to $50 or below, you buy it.

Margin of safety is a term coined by Benjamin Graham. The most famous world investor Warren Buffett adheres to his investment policy.

In the second sense investment margin- the leverage with which the trader trades. That is, a loan that a broker gives him to buy securities. The margin can be 1 to 100 or even 1 to 1000. This is done so that a trader, even with a small capital, can earn money on a minimal jump in value or currency.

Margin is an important indicator by which you can evaluate the efficiency of the enterprise. The higher the margin level, the better.

Hello, dear readers of the blog site. Those who, to one degree or another, are faced with the subject of doing business or any other financial aspects of activity, have probably heard such a word as margin.

At the same time, this word is quite often used in everyday life, but not everyone fully understands its meaning (which is common, but few people really understand what it means).

So what is margin? What is margin or margin? In general terms, then is a profit share, which is calculated as the difference between the cost of something and the price at which it is sold.

Remember the anecdote about 3%, where a not very distant businessman explains that he lives on only three percent, buying something for 100 rubles and selling for 300. But such discrepancies are actually found not only in questionnaires. People, for example, often confuse margin and markup, and then they have to find out for a long time which of the partners was wrong.

In simple words about margin

There are several words that are very close in meaning, meaning almost the same thing - these are words profit, margin and, of course, margin. Today we will focus on marginality, but we will definitely mention how they differ from each other, so that later we can speak the same language with business partners without any “misunderstandings”.

Historically, the word margin comes from the English "margin", which, as usual in the great and mighty Russian language, has dozens of meanings. For example, in a series of articles about website layout, and there this word meant margins, indentation from neighboring elements, a certain amount of free space.

Actually, it means something similar in the world of finance. In fact, this is precisely the very notorious profit that a businessman winds up relative to the base cost something (goods, services). In the most general sense, this is the difference in the price of a product at different stages of its movement on the market (from creation to acquisition).

The margin can be expressed both in absolute monetary units (rubles, tugrigs, dollars, hryvnias, euros) and as a percentage. It is important to remember - margin can never be more than 100%. This is an axiom, and by remembering this simple rule, you will be able to avoid mistakes and discrepancies with colleagues and partners in the future.

They confuse the margin with the so-called trade margin, which again can be expressed in both absolute and relative units. Moreover, in absolute terms, both the margin and the markup will turn out to be the same, but in relative terms they will be different. All the confusion arises precisely in the case when marginality is calculated as a percentage. Why is this happening? Let's show an example.

Let us have a product that we bought for 100 rubles, and sell for 300 rubles (the same notorious three percent from the joke). In this case in absolute units both margin and markup will be calculated using the same formula: resale price minus purchase price. In our example, it will be 300 minus 100 = 200 rubles. Everything is clear here and no confusion ever arises for anyone.

But the relative values of marginality and trade margin are calculated in different ways. Percentage margin is 300 - 100 divided by 300 (and, of course, multiplied by 100%). And the trade margin as a percentage is 300 - 100 divided by 100 (multiplied by 100%).

You can see for yourself that the margin in our example will be equal to 66% (much less than 100%, although the intermediary has tripled the price of the goods), but the trade margin will be just the same 300%. It's clear? Felt the difference. Therefore, it is important to understand very clearly what is at stake - about marginality or about the trading margin, because as a percentage it turns out completely different numbers (often differing at times).

If my example seemed incomprehensible to you, then in this two-minute video, look at the formulas with your own eyes and feel the essence:

Well and margin differs from net income the fact that additional costs are not taken into account here, for example, for the temporary storage of goods, for its transportation, for advertising, etc. That is, the net profit will be somewhat less than the calculated margin. But this, of course, will not be such a striking difference (however), as with the trade margin.

Marginality and margin trading - what is it?

I'll torment you a little more. You can also hear the word "margin" relatively. The stock exchange is, in fact, only a platform for transactions and they earn money there in the same way as in life - buy cheaper and sell more expensive. It is speculation and speculation in Africa (and in fact this word used to be a dirty word).

So, in some other types of exchanges (for example, in which I recently wrote about) there is an opportunity conduct margin trading with the so-called shoulder. What it is? In principle, I just wrote about this in great detail in the article cited at the link, but here I will nevertheless briefly repeat.

On such exchanges, you bet on the fall or rise of the exchange rate (dollar, pound, euro, bitcoin or other altcoins). If you guessed the direction of the course movement, then your earnings will depend on how much the course changes in the direction you need.
The main thing here is to close in time, before the process of course movement in another direction begins. Your profit will be equal to the margin per trade (the difference between the opening price and the closing price of the trade). You can earn both on growth and on a fall - this is not the essence of it.

Margin trading with leverage allows having a relatively small amount on the deposit (exchange account) earn (or lose) immediately very, very much. Without trading with leverage, for example, having $10 in your account, you can earn a couple of cents, and if you used x100 leverage in the same situation, you would have earned a hundred times more, i.e. a couple of dollars.

True, the loss in margin trading with leverage will be the same number of times greater, so beginners are highly discouraged from starting trading immediately with a large leverage, because there is a risk of losing everything quickly. It is noteworthy that in this case you risk only the money on deposit. You won't be able to lose more than this and you won't be left with anyone (it's not a loan).

It’s like they give you virtual money (in our example, increasing real $10 to $1000 thanks to x100 leverage). In any case, even if you win, you will get only profit from the transaction (that very notorious margin) plus the amount that you actually used (the virtual increase will remain virtual). In our example, by betting $10, you will receive $12 as a result (increase the deposit).

If you lose, then the margin (negative, i.e. loss) will be deducted from the amount involved in the transaction. In our example, instead of the $10 wagered, you only have $8 left (a $10 bet minus a $2 loss). But with a large leverage, you can lose, and in general everything, and very, very quickly (literally in seconds), if you choose the wrong direction for the movement of the rate (dollar and cryptocurrency), and the rate will sharply go in the other direction.

In general, this type of trading can allow earn much faster(tens and hundreds of times), but the risk of losing everything increases by the same amount. For beginners, as I already mentioned, margin trading with leverage above two and three is highly discouraged. The pros, on the other hand, can add marginality in time and keep afloat even with an unsuccessful bet, waiting for the desired direction of the course movement. IMHO.

Good luck to you! See you soon on the blog pages site

What is the difference between markup and margin?

Margin is the ratio between the price of a product on the market and the profit from its sale, the main income of the company after deducting all expenses, measured as a percentage. The margin due to the peculiarities of the calculation cannot be equal to 100%.

markup- this is the sum of the difference between the goods to its selling price, at which it is released to the buyer. The markup is aimed at covering the costs incurred by the seller or manufacturer in connection with the production, storage, sale and delivery of goods. The size of the margin is formed by the market, but is regulated by administrative methods.

For example, a product that was bought for 100 rubles is sold for 150 rubles, in this case:

(150-100)/150=0.33, as a percentage 33.3% - margin;
(150-100) / 100 \u003d 0.5, as a percentage of 50% - markup;

From these examples, it follows that the margin is just a markup on the cost of goods, and the margin is the total income that the company will receive after deducting all mandatory payments.

Differences between margin and markup:

Maximum allowable volume– the margin cannot be equal to 100%, but the markup can.
Essence. The margin reflects the income after deducting the necessary expenses, and the markup reflects the increase in the cost of the goods.
Calculation. The margin is calculated based on the income of the organization, and the markup based on the cost of goods.
Ratio. If the markup is higher, then the margin will be higher, but the second indicator will always be lower.

Calculation

Margin is calculated using the following formula:

OC - SS = PE (margin);

Explanation of indicators used in margin calculation:

PE- margin (profit per unit of goods);
OC
joint venture- the cost of goods;

The formula for calculating the margin or percentage of profitability:

TO- profitability ratio as a percentage;
P. - income received per unit of goods;
OC- the cost of the product at which it is sold to the buyer;

In modern economics and marketing, when it comes to margin, experts note the importance of taking into account the difference between the two indicators. These indicators are the profitability ratio from the sale and profit per unit of goods.

Speaking of margin, economists and marketers note the importance of the difference between the profit per unit of goods and the overall profit margin on the sale. Margin is an important indicator, as it is a key factor in pricing, the profitability of spending on marketing, as well as analyzing customer profitability and forecasting overall profitability.

How to use a formula in Excel?

First you need to create a document in Exc format.

An example of a calculation would be the price of a product of 110 rubles, while the cost of the product will be 80 rubles;

Markups are calculated according to the formula:

H \u003d (CPU - SS) / SS * 100

Gde:

H- margin;
CPU- Selling price;
SS- the cost of goods;

Margins are calculated using the formula:

M = (CPU - SS) / CPU * 100;

M– margin;
CPU- Selling price;
SS- cost;

Let's start creating formulas for calculating in the table.

Markup calculation

Select a cell in the table and click on it.

We write the sign corresponding to the formula without a space or activate the cells according to the following formula (follow the instructions):

=(price - cost)/ cost * 100 (press ENTER);

If filled in correctly, the value of 37.5 should appear in the margin field.

Margin calculation

=(price - cost)/ price * 100 (press ENTER);

If you fill out the formula correctly, you should get 27.27.

When receiving an incomprehensible value, for example 27, 272727…. You need to select the desired number of decimal places in the "cell format" option in the "number" function.

When making calculations, you must always select the values: “financial, numerical or monetary”. If other values are selected in the cell format, the calculation will not be performed or will be calculated incorrectly.

Gross margin in Russia and Europe

The concept of gross margin in Russia is understood as the profit received by the organization from the sale of goods and those variable costs for its production, maintenance, sale and storage.

There is also a formula for calculating the gross margin.

It looks like this:

VR - Zper = gross margin

VR- the profit that the organization receives from the sale of goods;
Zper. - the cost of production, maintenance, storage, sale and delivery of goods;

It is this indicator that is the main state of the enterprise at the time of calculation. The amount invested by the organization in production, for the so-called variable costs, shows the marginal gross income.

Gross margin or in other words the margin, in Europe, is the percentage of the total income of the enterprise from the sale of goods after payment of all necessary expenses. Gross margin calculation in Europe is calculated as a percentage.

Differences between exchange and margin in trading

To begin with, let's say that such a concept as margin exists in different areas, such as trading and stock exchange:

Trading Margin- the concept is quite common due to trading activities.
Exchange Margin- a specific concept used exclusively on stock exchanges.

For many, these two concepts are completely identical.

But this is not the case, due to significant differences, such as:

the relationship between the price of goods on the market and profit - margin;
the ratio of the cost of goods initially and profits - margin;

The difference between the concepts of the price of a product and its cost, which is calculated by the formula: (price of a product - cost) / price of a product x 100% = margin - this is exactly what is widely used in the economy.

When calculating using this formula, absolutely any currency can be used.

The use of settlements in exchange activities

When selling futures on the exchange, the concept of exchange margin is often used. Margin on exchanges is the difference in changes in quotes. After opening a position, the margin calculation begins.

To make it clearer, let's look at one example:

The cost of the futures you purchased is 110,000 points on the RTS index. Literally five minutes later, the price rose to 110,100 points.

The total size of the variation margin was 110000-110100=100 points. If in rubles - your profit is 67 rubles. With an open position at the end of the session, the trading margin will move into the accumulated income. The next day, everything will repeat again according to the same pattern.

So, to summarize, there are differences between these concepts. For a person without economic education and work in this direction, these concepts will be identical. And yet, we now know that this is not the case.

The main rule of business activity is its profitability. That is, the produced goods must be sold at a price that justifies the costs associated with its production and sale. In this regard, it is extremely important to take into account such an indicator as the margin of goods, which shows the prospects of a particular business.

Marginality as a measure of business

Marginality (margin) is an economic term that shows the difference between production costs (cost) and the price that a consumer is willing to pay for a product. Margin often means the profit received from each sold product and the profitability ratio. It is expressed as a percentage, and the final price of the goods is 100%.

The profitability ratio is the main indicator of the success of a business, so marginality is necessarily taken into account when analyzing entrepreneurial activity. After all, it does not matter how much the product costs and how much money is invested in its creation, if in the end the profitability only partially or barely covers the costs.

By correctly calculating the margin, you can assess how promising it is to produce a product, how long it will bring profit, and whether it is necessary to work with it at all.

This means that unprofitable goods and products that carry a small profit should not be produced.

Margin Calculation Formula

The way margin is calculated is different because the term can mean both net income and its ratio. But both methods are accurate in estimating the level of profitability of a new product, which allows you to make the right decision about its production.

where M is the margin;
D - income;
And - costs.

The margin ratio is calculated using a different formula:

where k is the margin ratio;
P - profit from one unit of goods;
C - the selling price of a unit of goods.

The minimum coefficient is considered to be more than 20%, a good indicator is a coefficient of 30-40%.

That is, the higher the numbers, the more profitable the product will be, which means that the enterprise will quickly become profitable.

This formula is best used by enterprises planning to produce several varieties of products. The results will show which goods should be produced, and which should be abandoned, as well as determine the volume of production.

Gross margin

Profitability can be expressed in gross margin, but the European and Russian understanding of this term is different. So, in Russia, gross margin determines the amount of profit from goods sold, from which the costs of their creation, which are of a variable nature, are deducted, that is, it shows how the company takes into account and covers costs.

In European economic theory, the gross margin is calculated as a percentage of the profitability (after deducting the cost of production), which is obtained after the sale of the goods.

The difference between approaches is of fundamental importance - in Russia it is money, in Europe it is interest.