What Is Margin?

Margin is the amount of your own money that a broker holds as collateral while a leveraged position is open. It is not a fee or a cost; it is a portion of your account balance that cannot be used for new trades until the position is closed. Understanding margin, and the related figures of equity, free margin and margin level, tells you how close your account is to a forced liquidation.

Margin and leverage are two sides of one arrangement

When you open a leveraged position, you control a notional value far larger than your deposit. The broker requires a fraction of that value as security. That fraction is the margin, and the ratio between notional value and margin is the leverage.

Required margin = (lots × contract size × price) ÷ leverage

The result is in the quote currency of the pair; if your account is in a different currency, it is converted at the current rate.

Worked example: buying 0.5 lots of EUR/USD at 1.0850 with 1:30 leverage.

• Notional value: 0.5 × 100,000 × 1.0850 = $54,250
• Required margin: 54,250 ÷ 30 = $1,808.33

At 1:100 the required margin would be $542.50, and at 1:200 it would be $271.25. Available leverage varies by broker, account type, instrument and jurisdiction, so use the margin calculator with the settings for your own account. How to Calculate Margin works through several more examples, including pairs where the quote currency differs from the account currency.

The account figures you need to know

A trading platform displays several related numbers. They are easy to confuse, and each has a precise meaning.

Equity, not balance, is the figure that matters for margin purposes. A trader can have a healthy balance and still face a stop-out if open positions carry large floating losses.

A worked account snapshot

Suppose your account has a balance of $5,000 and you hold the 0.5-lot EUR/USD position above, which currently shows a floating loss of $500.

If the trade recovers to break-even, equity returns to $5,000 and margin level rises to about 276%. If the loss deepens, equity and margin level fall together. Used margin stays constant as long as the position size does not change, although some brokers recalculate it as the price moves.

Margin call and stop-out

Two thresholds govern what happens as margin level falls. The exact percentages vary by broker and account type and are set out in the trading conditions; the figures below are illustrative.

Margin call

When margin level drops to the margin call level (for instance 100%), the platform warns you. Historically this was a phone call from the broker; today it is usually a colour change or notification. At this point equity roughly equals used margin, meaning your losses have consumed all free margin. You can respond by depositing funds, closing positions or reducing size.

Stop-out

If margin level continues to fall to the stop-out level (for instance 50%), the broker automatically closes positions, usually starting with the largest losing trade, until margin level rises back above the threshold. This protects both the trader and the broker from an account going negative, although in fast markets a stop-out can still execute at a worse price than the threshold implies.

Continuing the example: with used margin of $1,808.33, a 100% margin call would occur when equity fell to $1,808.33, that is after a floating loss of $3,191.67, which on a $5-per-pip position is about 638 pips. A 50% stop-out would occur at equity of $904.17. These are large moves for a single 0.5-lot position on a $5,000 account, which illustrates why moderate position sizes leave a comfortable buffer.

How position size changes the picture

Now suppose the same $5,000 account opens 2 lots of EUR/USD at 1.0850 with 1:30 leverage instead.

The required margin exceeds the account balance, so the platform will reject the order. Reduce it to 1.3 lots: notional $141,050, margin $4,701.67, free margin $298.33, pip value $13. A move of just 23 pips against the position would exhaust free margin and trigger a margin call at the 100% level. The trader has left almost no cushion.

The lesson is that margin is not just a formality at the moment of opening a trade. The free margin remaining after a trade is opened is the buffer that keeps the account alive through normal price fluctuations.

Margin on multiple positions

Used margin is the sum of the margin on all open positions. Some brokers apply hedged margin rules, holding reduced margin when you hold opposite positions in the same instrument, but this varies and should be checked in the account terms. Positions in different pairs never offset for margin purposes, even if they are economically similar, so several trades can consume free margin faster than expected.

Margin during volatile conditions

Brokers may raise margin requirements temporarily around scheduled events such as elections or central bank decisions, or over weekends and holidays when markets are closed and gaps are possible. A higher margin requirement on existing positions reduces free margin immediately, and in some cases can push an account toward a margin call without any price movement. Check for announcements from your broker ahead of major events; the economic calendar highlights the ones most likely to matter.

Practical guidelines

1. Keep margin level high. Many traders aim to keep used margin at a small fraction of equity so that margin level stays well into the hundreds of percent under normal conditions.
2. Watch free margin, not balance. Balance is history; free margin is the present.
3. Size positions from risk per trade. If you risk a small percentage of equity on each trade with a stop-loss, margin usage tends to stay moderate as a by-product. The position size calculator helps with this.
4. Know your broker's levels. Margin call and stop-out percentages differ between brokers and account types.
5. Do not rely on the stop-out as your risk management. It is a last resort that fires in adverse conditions, not a substitute for your own stop-loss.

For a walkthrough of where each of these figures appears on the platform, see How to Read Your Trading Account.

Key takeaways

• Margin is collateral set aside from your account for an open position; it is not a fee and is released when the trade closes.
• Required margin equals notional value divided by leverage.
• Equity is balance plus floating profit or loss; free margin is equity minus used margin; margin level is equity divided by used margin as a percentage.
• A margin call warns that free margin is nearly exhausted; a stop-out closes positions automatically at a lower level.
• Position size, not just leverage, determines how much buffer remains after a trade is opened.
• Margin requirements can rise around major events, reducing free margin without any price change.