Margin

What is margin?

Margin is the portion of a trader’s own funds that a broker sets aside — locks up — as collateral while a leveraged position is open. It is not a fee or a cost; it’s the trader’s own money, temporarily reserved, that is returned once the position is closed (adjusted for any profit or loss on the trade).

Margin is what makes leverage possible: instead of paying the full value of a position, a trader only needs to put up a small percentage of it — the margin requirement — with the broker effectively fronting the rest of the exposure.

A worked example

Margin requirements are usually expressed as a percentage of the position’s full notional value, which is the inverse of the leverage ratio.

Leverage	Margin requirement	Margin on a $100,000 position
1:50	2%	$2,000
1:100	1%	$1,000
1:500	0.2%	$200

So if a trader opens a $100,000 EUR/USD position (one standard lot) at 1:100 leverage, the broker requires $1,000 of margin. That $1,000 is deducted from the account’s free margin and becomes used margin for as long as the position stays open.

Why margin matters

Margin is the mechanism that connects leverage to real account risk. Every open position consumes a slice of the account’s equity as margin, and as more positions are opened, less free margin remains to absorb further losses or open new trades. If losses on open positions push equity down close to the used margin, the account’s margin level falls, which can trigger a margin call or an automatic stop-out. Understanding margin is therefore a prerequisite for understanding account health, not just for opening a trade.

Quick recap

• Margin is the trader’s own collateral set aside to open and hold a leveraged position.
• The margin requirement is the inverse of leverage: higher leverage means a lower margin requirement for the same position size.
• Margin used by open positions reduces the free margin available for new trades or to absorb losses.
• Running low on free margin is the first step toward a margin call and, ultimately, a stop-out.

Trading on margin carries a high level of risk; losses can occur quickly and, without negative balance protection, may exceed your deposit.