Margin is the mechanism through which leverage operates. When you open a leveraged position, your broker does not lend you the money freely — it requires a deposit, called margin, as collateral against the position. Understanding margin — specifically how much of your account is locked, how much is free, and what happens when losses push your margin level too low — is essential for managing your account safely.
Margin Defined
Margin is not a fee or a cost — it is a portion of your account balance that your broker sets aside as collateral while your trade is open. It is returned to you when you close the position, adjusted for any profit or loss made. Think of it as a security deposit that the broker holds to cover potential losses on the position.
EUR/USD, 1.00 standard lot Account leverage: 30:1 Notional value: 100,000 × 1.0850 = $108,500 Required margin: $108,500 ÷ 30 = $3,617 EUR/USD, 0.10 mini lot Required margin: $10,850 ÷ 30 = $362 EUR/USD, 0.01 micro lot Required margin: $1,085 ÷ 30 = $36
Used Margin vs Free Margin
Once you open a position, your account balance is divided into two: used margin (the amount locked as collateral) and free margin (everything else). Free margin is the capital available to open new positions or to absorb losses on existing ones.
Account balance: $5,000 Open trade: 0.30 lots EUR/USD Required margin (at 30:1): $1,086 Used margin: $1,086 Free margin: $5,000 − $1,086 = $3,914 Equity (if trade is at breakeven): $5,000 If the trade moves 50 pips against you: Loss: 50 × $3.00 = $150 Equity: $4,850 Free margin: $4,850 − $1,086 = $3,764
Margin Level Percentage
Margin level is the ratio of your equity to your used margin, expressed as a percentage. It is the number your broker monitors to determine the health of your account.
Margin Level = (Equity ÷ Used Margin) × 100 Example: Equity: $4,850 Used Margin: $1,086 Margin Level: ($4,850 ÷ $1,086) × 100 = 447%
A margin level above 100% means your equity is greater than your used margin — the account is healthy. As losses accumulate, equity falls, and margin level falls with it. When margin level falls to the broker's margin call level — typically 100% — you receive a warning. When it falls to the stop out level — typically 50% — the broker begins automatically closing your positions.
Margin Call and Stop Out
A margin call is a warning from your broker that your margin level has fallen to the margin call threshold. At this point, you should either deposit more funds or close positions to reduce used margin. If you do neither and losses continue, the account reaches the stop out level — typically 50% margin level — and the broker automatically closes your largest losing position first.
A margin call is not a request — it is a warning sign that your account is in serious trouble. If you receive a margin call, something has gone fundamentally wrong with your position sizing or risk management. The correct response is to close positions immediately — not to deposit more money and hope the market reverses.
How to Avoid a Margin Call
Margin calls are almost always the result of one of three mistakes: position sizes that are too large for the account, no stop losses set on open positions, or too many positions open simultaneously.
The solution to all three is the same: calculate correct position sizes before every trade, always set a stop loss, and monitor total used margin as a percentage of your account before opening new positions. Keep free margin above 50% of your account balance at all times while you are learning. This gives your trades room to breathe without threatening your entire account.