Margin

What margin means

Margin is the amount of your own money that a broker sets aside as collateral when you open a leveraged position. It is not a fee and it is not spent. It is a deposit held against the possible losses of the trade, and it is released when the position is closed. Margin is what makes leverage possible: instead of paying the full value of a position, you commit a fraction of it.

The term appears in forex, CFD, futures and margin-lending trading. The details differ. In forex and CFDs, the margin requirement is usually stated as a percentage of the position value or as a leverage ratio. In futures, exchanges and clearing houses set initial and maintenance margins per contract. For margin loans on shares, the margin is the portion of the purchase paid with your own funds, and the rest is borrowed.

You will see several related measures on a trading platform: used margin, free margin, equity and margin level. They describe how much of your account is committed, how much is available and how close you are to the point where the broker may act.

How it works

When you open a position, the platform calculates the required, or initial, margin and moves that amount from free margin to used margin. The basic formula is:

• Required margin = position value divided by leverage, or position value multiplied by the margin percentage.

Equity is your balance plus or minus the floating profit or loss on open trades. Free margin is equity minus used margin, and it shows how much you can still use for new positions or to absorb losses. As prices move, equity changes, and so does free margin, while used margin stays the same unless positions change.

Some brokers also apply a maintenance margin, the minimum equity required to keep positions open. If equity falls toward it, the account receives a margin call, and below a further threshold the broker closes positions in a process called a stop-out. Margin requirements are not fixed: brokers may raise them for volatile instruments, around news or over weekends, and regulators may impose minimum rates, especially for retail clients.

Where several positions are open, hedged or offsetting positions may reduce margin on some platforms, depending on the account rules.

A worked example

The numbers are illustrative only. You have an account with 3,000 USD balance and open a position of 50,000 EUR/USD at 1.1000 with 30:1 leverage.

1. Position value: 50,000 x 1.1000 = 55,000 USD.
2. Required margin: 55,000 / 30 = about 1,833 USD.
3. Used margin: 1,833 USD. Free margin at opening: 3,000 minus 1,833 = 1,167 USD (assuming no floating profit or loss).

Now the price falls 40 pips (0.0040), moving to 1.0960.

1. Floating loss: 50,000 x 0.0040 = 200 USD.
2. Equity: 3,000 minus 200 = 2,800 USD.
3. Free margin: 2,800 minus 1,833 = 967 USD.
4. Margin level: 2,800 / 1,833 x 100 = about 153 percent.

The margin itself, 1,833 USD, is not lost. It remains blocked as collateral. The loss comes from the price move. If the price keeps falling, free margin shrinks, and when equity approaches the used margin the broker may issue a margin call.

If the broker raised the margin requirement to 5 percent during an event, the same position would need 2,750 USD, and the account would be much closer to its limit even without price change.

Why it matters

Margin determines how many positions you can hold and how much loss the account can bear before positions are closed. A trader who uses almost all free margin has no room for adverse moves. Understanding margin also explains why forced closure can occur even when you believe the trade is correct: the account runs out of buffer before the market turns.

Margin rates differ between instruments and broker entities. Major forex pairs usually have lower requirements than shares, exotic pairs or crypto CFDs. Retail accounts often have higher margin percentages than professional accounts, because regulators cap leverage for retail clients.

How to use it in practice

• Read the margin requirement for each instrument in the contract specification.
• Check used margin, free margin and margin level on the platform before and after opening trades.
• Keep a large share of free margin unused, instead of committing to the maximum.
• Learn the broker's margin call and stop-out thresholds and how it closes positions.
• Watch for temporary margin increases before weekends, holidays and major news.
• Consider the effect of multiple correlated positions on the same account.
• Practice on a demo account to see how margin figures respond.

Common mistakes and misconceptions

• Treating margin as a cost. It is collateral returned when the position closes, though financing charges may apply.
• Believing the margin is the maximum you can lose. Losses are calculated on the whole position and can exceed the margin.
• Using nearly all available margin for one trade.
• Assuming requirements never change. Brokers can raise them at short notice.
• Mixing up margin with leverage. Margin is the deposit; leverage is the ratio between exposure and deposit.
• Forgetting that floating losses reduce free margin immediately.

Risks and limitations

Margin trading magnifies both profits and losses, and positions can be closed automatically at a loss. In fast markets, closure may occur at prices worse than the stop-out level. Depending on the account type and jurisdiction, you may be able to lose more than the margin, or more than your deposit. Rules, rates and protections differ by region and broker entity.

How Brokeli looks at it

We collect margin rates by asset class, margin call and stop-out levels, and how and when requirements can change, for each broker entity and country. This comes from published research snapshots, so retail and professional conditions can be compared fairly. We treat low margin requirements as a feature that increases risk, not as an advantage.