Margin is the amount of capital your broker sets aside as collateral when you open a leveraged trade. It's not a cost or a fee — it's a portion of your own funds temporarily reserved to cover potential losses on the open position.
Required Margin
Required margin = Position notional value ÷ Leverage. At 50:1 leverage, a 1-lot EUR/USD trade ($100,000 notional) requires $2,000 in margin. At 100:1, the same trade requires $1,000.
Brokers express this as a margin rate or margin percentage. A margin rate of 2% = 50:1 leverage. A margin rate of 1% = 100:1 leverage.
Free Margin
Free margin = Equity − Used margin. Equity is your account balance adjusted for open profit or loss. If your account is $10,000, you have $2,000 in required margin for an open trade, and the trade is currently down $500, your equity = $9,500 and your free margin = $9,500 − $2,000 = $7,500.
Margin Call and Stop Out
A margin call is a warning that your free margin is falling too low. Brokers typically issue this when equity drops to 100% of required margin. A stop out — where positions are automatically closed — happens when equity falls to a lower threshold, often 50% of required margin.
The practical lesson: margin calls happen when positions are too large relative to the account. The solution is not to fund the account to continue the losing trade — it's to size positions so that a margin call is mathematically impossible given a reasonable stop loss.
Margin vs Risk
Many traders confuse margin with risk. They are not the same. Your margin requirement tells you how much capital is reserved. Your actual risk on the trade is determined by the distance from entry to stop loss, multiplied by position size. A trade can have low margin requirements (high leverage) and still represent enormous risk — or vice versa. Always calculate risk from the stop loss, not from the margin.