Definition
MarginMargin is the portion of your account a broker sets aside as a good-faith deposit to open and hold a leveraged position. It is not a fee.
Example
Opening 1 standard lot of EUR/USD at 1.0800 with a 3.33% margin requirement (1:30) sets aside about $3,600 of your account while the trade is open.
In detail
When you trade with leverage, you do not pay the full value of the position. Instead the broker locks a fraction of it from your account as collateral. That locked amount is called used (or required) margin. It is returned to your available funds when you close the trade, adjusted for any profit or loss.
The basic formula is:
Required margin = (lot size × contract size × price) ÷ leverage
The result is in the quote currency of the pair, so it may need converting to your account currency.
Key margin terms
- Used margin: total collateral locked by open positions.
- Free margin: equity minus used margin. This absorbs losses and funds new trades.
- Margin level: equity ÷ used margin × 100%. Brokers use this to trigger a margin call or a stop out.
Example
Assume (illustratively) a USD account trades 0.5 lots of GBP/USD at 1.2600 with 1:30 leverage.
- Position value: 0.5 × 100,000 × 1.2600 = $63,000
- Required margin: 63,000 ÷ 30 = $2,100
For a pair where USD is the base, such as USD/JPY, the position value is already in dollars. 0.5 lots = 50,000 USD, so margin at 1:30 is 50,000 ÷ 30 = about $1,667, regardless of the yen price.
Why it matters
Margin is not the amount you can lose. A trade that requires $2,100 of margin can lose more than $2,100 if the market moves far enough, eating into your free margin and the rest of your account. Some jurisdictions require brokers to provide negative balance protection for retail clients, but not all do.
A common beginner error is treating free margin as spare money to open more trades. Using most of it leaves little room for normal price fluctuations. The Margin Calculator shows how much margin a position needs before you place it.
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Related terms
- LeverageLeverage lets you control a position larger than your own deposit by using borrowed exposure from your broker. It magnifies both profits and losses.
- Margin CallA margin call is a broker warning that your account equity has fallen too low relative to the margin your open positions require.
- EquityEquity is the real-time value of a trading account: the balance plus or minus the unrealized profit or loss on all open positions.
- LotA lot is a standardized trade size in forex. One standard lot is 100,000 units of the base currency; mini and micro lots are 10,000 and 1,000 units.