Margin is the good-faith deposit that lets you trade with leverage. It is not spent; it is set aside while a position is open. If losses eat into it, the broker can ask for more funds through a margin call or close positions automatically.
How it’s calculated
- Required margin = position value × margin requirement (for example 3.33% for 30:1)
- Equity = account balance ± open profit or loss
- Free margin = equity − used margin
- Margin level (%) = equity ÷ used margin × 100
Brokers set a margin-call level and a lower stop-out level, often expressed as margin level percentages. The thresholds vary by broker and jurisdiction, so check your own platform’s terms.
Example
You have a $5,000 account and buy 1 standard lot of EUR/USD at 1.1000, a position worth $110,000. With a 2% margin requirement (50:1):
- Required margin = 110,000 × 2% = $2,200
- Free margin right after entry = 5,000 − 2,200 = $2,800
- Margin level = 5,000 ÷ 2,200 = about 227%
One pip on a standard lot of EUR/USD is worth $10. If the pair falls 150 pips, the open loss is $1,500, equity drops to $3,500, and margin level falls to about 159%. At around 280 pips against you, equity would fall to the $2,200 of used margin, a 100% margin level, which many brokers treat as a margin-call threshold.
Common mistakes
- Treating free margin as spare capital. Free margin is the buffer that absorbs losses; filling it with new trades leaves no room.
- Confusing margin with risk. Margin tells you what is locked up; the stop distance and position size tell you what you can lose.
- Ignoring correlated positions. Several positions on related pairs use margin and move together, accelerating drawdown.
- Not knowing the stop-out level. Positions can be closed at the worst moment if you do not know where your broker’s limits sit.
The pip calculator and position size calculator help size trades before margin becomes the constraint.
Educational content — not financial advice.
Updated