Margin Trading Basics
Margin is the collateral you must deposit to open and maintain leveraged positions. Understanding margin is essential for managing risk and avoiding margin calls.
What is Margin?
Margin is NOT a fee or cost—it's a security deposit held by your broker while you have open positions.
Key Terms
Required Margin: Minimum amount needed to open a position Used Margin: Total margin currently locked in open trades Free Margin: Available to open new positions (Equity - Used Margin) Margin Level: (Equity ÷ Used Margin) × 100
Example
Account: $5,000 Position: 1 lot EUR/USD at 50:1 leverage Required margin: $100,000 ÷ 50 = $2,000
Used margin: $2,000 Free margin: $3,000 Margin level: ($5,000 ÷ $2,000) × 100 = 250%
Margin Call
A margin call occurs when your margin level falls below your broker's threshold (typically 100%).
What happens:
- Broker warns you (margin call notification)
- You must deposit more funds or close positions
- If margin level hits stop-out level (20-50%), broker closes positions automatically
Example of Margin Call
Account: $5,000 Used margin: $2,000 Open loss: -$3,500 Equity: $1,500 Margin level: ($1,500 ÷ $2,000) × 100 = 75% *Margin call triggeredc:/Users/User/studio && node update-all-help-content.js
How to Avoid Margin Calls
- Never use >20% of available margin
- Always use stop losses
- Monitor margin level constantly
- Keep reserve funds for drawdowns
- Reduce position size if margin level <200%
Best Practices
- Target margin level: >300%
- Alert threshold: 150%
- Never add to losing positions
- Close trades before weekend gaps
- Understand broker margin requirements
Remember: Protecting your margin is protecting your trading career.
