Margin level

Your broker acts on this percentage automatically at two thresholds: the margin call level, where it warns you, and the lower stop out level, where it starts closing your positions. Some brokers also block new trades at the margin call level, but you can't open a trade anyway once your free margin is smaller than the margin that trade needs. At stop out, most brokers close the largest losing position first and then check the level again. They keep closing one position at a time until the level is back above the threshold, so you may lose some of your trades rather than all of them. Both thresholds are set by your broker, so look them up before you size a trade.

The margin level formula and its three inputs

Margin level (%) = Equity ÷ Used margin × 100

• Equity is your balance plus or minus the floating profit or loss on open trades. It moves with every tick.
• Used margin is the deposit your broker locks to keep your positions open. It normally stays fixed until you open, close or resize a trade, unless your broker changes its margin requirement. At many brokers it also drifts slightly as price moves, but far less than equity does.
• Free margin is equity minus used margin. It is the money left to open new trades or absorb losses.

For a pair quoted in USD, the used margin of one position is:

Used margin = Position size in units × Price ÷ Leverage

Leverage here is the second number of the ratio: with 1:50 leverage, divide by 50.

Since used margin normally stays put, a falling margin level means your equity is shrinking. The drawing below shows one example account's equity shrinking against the same block of used margin.

Margin level falling as equity shrinks against a fixed 250 USD of used margin

Worked margin level for 500, 5,000 and 50,000 USD accounts

The figures here are an illustrative example: a pair quoted in USD at 1.2500, leverage of 1:50, and a broker with a margin call level of 100% and a stop out level of 50%. Your broker's numbers will differ.

Start with the 500 USD account opening 0.10 lots (10,000 units), then let the trade go 150 pips against you at 1 USD per pip.

Margin level on a 500 USD account before and after a 150 USD floating loss

Position value10,000 × 1.25= $12,500

Used margin$12,500 ÷ 50= $250

Margin level at open$500 ÷ $250 × 100= 200%

Equity after loss$500 − $150= $350

Margin level now$350 ÷ $250 × 100= 140%

Margin level after the loss140%

The same steps on the two larger accounts:

1. 5,000 USD, 0.50 lots. Position value is 50,000 × 1.25 = 62,500 USD. Used margin is 62,500 ÷ 50 = 1,250 USD. Margin level is 5,000 ÷ 1,250 × 100 = 400%.
2. 50,000 USD, 2.00 lots. Position value is 200,000 × 1.25 = 250,000 USD. Used margin is 250,000 ÷ 50 = 5,000 USD. Margin level is 50,000 ÷ 5,000 × 100 = 1,000%.

Now turn the percentage into something you can trade with, the distance to a margin call:

Loss room = Equity − (Used margin × Margin call level)
Pips of room = Loss room ÷ Pip value of your position

Put the stop out level in place of the margin call level to get the distance to a forced close. For the 500 USD account that is 500 − (250 × 50%) = 375 USD, ÷ 1 USD per pip = 375 pips.

Price levels for the 500 USD account's 0.10-lot buy at 1.2500: margin call at 1.2250 and stop out at 1.2125Illustration

The smallest account has the least room because it is the most heavily loaded, not because it is small. A 50,000 USD account running 10 lots would also sit at 200%.

Pips of room to a 100% margin call by account size and position sizeIllustration

500 USD, 0.10 lots

250 pips

5,000 USD, 0.50 lots

750 pips

50,000 USD, 2.00 lots

2,250 pips

50,000 USD, 10 lots

250 pips

What each margin level percentage tells you

This table is pure arithmetic, so it holds at any broker. Compare it with your broker's own margin call and stop out levels.

Deciding what a safe margin level is for your account

No single percentage is safe for everyone, because the answer depends on where your stops are. Use this check before you place a trade:

Worst-case level = (Equity − total loss if every stop is hit) ÷ Used margin × 100

On the illustrative 500 USD account (250 USD used margin, 1 USD per pip), here is the check with two different stops:

• Stop at 100 pips: (500 − 100) ÷ 250 × 100 = 160%. That is above the 100% margin call, so the stop closes the trade first.
• Stop at 300 pips: (500 − 300) ÷ 250 × 100 = 80%. You are warned before the stop is hit, but the level is still above the 50% stop out.

Compare the worst-case level with both of your broker's thresholds:

• If it stays above the margin call level, your stops close the trades before the broker steps in. The closer it gets to that level, the less room spread and slippage leave you.
• If it is below the margin call level, you are warned or blocked before your stops are hit.
• If it is below the stop out level, the broker closes you before your own stop does.
• If you trade without a stop, the pips-of-room figure is your real stop. Decide whether you accept that.

You cannot set margin level directly. You change it through position size, the number of open trades, your account leverage and your deposit. When the worst-case level fails the check, cutting the position size is the first lever to pull.

Margin level mistakes that lead to a stop out

• Reading it right after entry only. The level at open is the best it will be if the trade goes against you. Check the worst-case level instead.
• Adding to a losing position. Equity is already down, and the new trade raises used margin, so the percentage falls from both sides.
• Treating free margin as spare money to trade. Using all of it puts you at 100%, with nothing left to absorb a loss.
• Opening a bigger position because higher leverage allows it. With the same position, higher leverage really does lower used margin and give you more pips of room before a stop out. The danger is that it also lets you open a larger position, and a larger position has a higher pip value, so each pip against you costs more money.
• Treating a high margin level across several correlated trades as safe. One move hits all of them at once, so equity drops several times faster than the single-trade pips-of-room figure suggests.

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