Margin
Also called Required margin, Used margin, Initial margin, Margin requirement, Trading margin
Margin is the part of your account a broker locks as a deposit while you hold a leveraged trade. It equals the full value of the trade divided by your leverage, and it is released when the trade closes.
Margin is not a fee, and it is not the amount you risk on the trade. What matters to your money is how much margin is left over. When it runs out you cannot open new trades, and if losses continue to the stop-out level the broker starts closing your positions at a price you did not choose.
The margin formula and the four numbers built on it
Required margin = (lots × contract size × price) ÷ leverage
Contract size is 100,000 units for one standard lot. Those units are always units of the base currency, which is the first currency in the pair. In EUR/USD, one lot is 100,000 euros.
Price turns those units into your account currency. On a USD account, there are three cases:
- USD is second (EUR/USD): multiply by the pair's price.
- USD is first (USD/JPY): the lot is already in dollars, so leave price out.
- No USD in the pair (EUR/GBP): multiply by the base currency's price in dollars. Here that is the EUR/USD price, not the EUR/GBP price.
Some brokers show a margin requirement as a percentage instead of leverage. It is the same thing turned around: leverage of 1:100 is a 1% requirement.
Once a trade is open, four more numbers follow:
- Used margin: the required margin of all your open trades added together.
- Equity: your balance plus or minus the running profit or loss on open trades.
- Free margin: equity minus used margin. This is what absorbs losses and funds new trades.
- Margin level: equity ÷ used margin × 100, shown as a percentage.
Your broker draws two lines on the margin level. A margin call is the margin level at which the broker warns you or blocks new trades. Below it sits the stop-out level, where the broker starts closing your positions.
The figures from here on are an illustrative example: EUR/USD at 1.2500, leverage 1:100, a USD account, the standard $10 per pip for one lot, and a broker that issues a margin call at a 100% margin level and a stop-out at 50%. Your broker's numbers will differ.
The bar below shows how they fit together.
The calculation below runs all of them for one trade.
Worked margin calculations for 500, 5,000 and 50,000 USD accounts
$500 account, 0.04 lots
- Trade value: 4,000 × 1.2500 = $5,000
- Margin: $5,000 ÷ 100 = $50
- Free margin: $500 − $50 = $450
- Margin level: $500 ÷ $50 × 100 = 1,000%
$5,000 account, 1 lot
The $5,000 account is the calculation above: $1,250 margin, $3,750 free, 400% level.
$50,000 account, 20 lots
- Trade value: 2,000,000 × 1.2500 = $2,500,000
- Margin: $2,500,000 ÷ 100 = $25,000
- Free margin: $50,000 − $25,000 = $25,000
- Margin level: $50,000 ÷ $25,000 × 100 = 200%
Now the calculation most traders skip. At a 100% call level, the call arrives when your loss equals your free margin, so:
Pips to margin call = free margin ÷ pip value of the position
Pip value scales with size: $10 × 0.04 lots = $0.40, $10 × 20 lots = $200.
- $500 account: $450 ÷ $0.40 = 1,125 pips
- $5,000 account: $3,750 ÷ $10 = 375 pips
- $50,000 account: $25,000 ÷ $200 = 125 pips
The chart below puts the three side by side. The largest account is the closest to a margin call, because half its equity is locked. Margin level tells you how safe you are; account size does not.
The call is only the warning. The forced closing happens at the stop-out, here 50%:
Loss to stop-out = equity − (used margin × 50%)
For the $5,000 account, $1,250 × 50% = $625, so $5,000 − $625 = $4,375. At $10 per pip that is 437.5 pips.
Quick reference: margin per lot size at different leverage
Same illustrative price of 1.2500 on a USD account.
| Leverage | Margin requirement | 1.00 lot | 0.10 lot | 0.01 lot |
|---|---|---|---|---|
| 1:20 | 5% | $6,250 | $625 | $62.50 |
| 1:50 | 2% | $2,500 | $250 | $25 |
| 1:100 | 1% | $1,250 | $125 | $12.50 |
| 1:500 | 0.2% | $250 | $25 | $2.50 |
Margin mistakes that get trades closed early
- Treating margin as your maximum loss. Your loss comes from position size and stop distance. It can be far smaller or larger than the margin.
- Sizing a trade by what the margin allows. Decide size from the money you accept losing, then check that the margin fits. Never the other way round.
- Watching balance instead of equity. Balance ignores open losses. Margin level is calculated from equity, and that is the number that triggers a stop-out.
- Forgetting that margin stacks. Every open position adds to used margin, so a third trade can be refused or can drag the margin level down for all of them.
- Blaming leverage itself. Higher leverage only lowers the deposit. Risk rises when you use the spare room to trade bigger.
A working rule, not a broker rule: if a new trade would take your margin level below 200%, meaning used margin is more than half your equity, reduce the size.
Check before you click. Many platforms show the required margin in the order window before you confirm. Check it there instead of finding out after the fill. Once the trade is open, the account summary line under your open trades normally lists balance, equity, margin (the used amount), free margin and margin level. The margin call and stop-out percentages are listed in the broker's account terms.
FAQ
Why did my margin requirement change over the weekend or before news?
Brokers can raise the margin requirement ahead of weekends, major news or volatile markets, because price can jump past normal levels. The required margin on your open trades goes up, so your margin level falls even though price has not moved. Read the broker's notices and keep extra free margin going into those periods.
What is margin in futures trading?
The exchange sets a minimum initial margin per contract, as a dollar amount instead of a percentage, and your broker may require more. There is also a lower maintenance margin you must stay above. Profits and losses are settled to your account daily, and falling below maintenance means topping up or being closed.
How does margin work when trading crypto?
The formula is the same. The differences are practical: you often pick leverage per position, and you may choose between isolated margin, where only that trade's deposit is at stake, and cross margin, where the whole account balance backs every position.