Field Guide to Trading Terms

Margin

Family II · Margin & leverage · Entry 214

Not to be confused with margin call, margin level, or the profit margin of a business.

Margin is the part of your account balance a broker sets aside as collateral while a leveraged position is open. It is a deposit held against the trade, not a fee: when the position closes, the margin returns to the free balance.

Because margin is held rather than spent, it never appears as a cost in a statement. What it does instead is limit how much else you can open: money locked as margin on one position cannot back another. Every broker publishes margin requirements per instrument, and regulators cap how low they may go for retail clients.[1]

How margin is calculated

Required margin follows from the position size and the leverage allowed on that instrument. The position size is the notional value — the full value of the contract, not the sum you put up — and leverage is the ratio between the two.

Worked example

One standard lot of EUR/USD at 1:30
Notional value100,000 × 1.0850$108,500
Leverage allowedregulatory cap, major pair1:30[2]
Required margin108,500 ÷ 30$3,616.67

At 1:30, a position worth $108,500 is backed by $3,616.67 of your own money. Raise the leverage to 1:500 and the same position needs $217 — the exposure has not changed, only the share of it you are holding.

Relation to leverage

Margin and leverage are two readings of one ratio. Leverage states it as a multiple, margin states it as the slice you must put up.

Required margin on $108,500 notional
LeverageAs marginRequiredFree after
1:303.33 %$3,616.67$1,383.33
1:1001.00 %$1,085.00$3,915.00
1:5000.20 %$217.00$4,783.00

Free, used and margin level

A trading account shows margin in three readings at once. Used margin is the total held against open positions. Free margin is what remains available to open more. Margin level is equity divided by used margin, as a percentage — the number the broker watches.

Margin call and stop out

When margin level falls to a threshold the broker sets, it issues a margin call — a warning that the account can no longer support its positions. If the level keeps falling, the stop out follows: the broker closes positions itself, starting with the largest loss, until the level recovers.[3]

Often confused with

Leverage
The same ratio read the other way round. Leverage is the multiple; margin is the deposit that multiple implies. Field mark: written as 1:30, not as a sum of money.
Margin call
Not an amount but an event — the warning that margin level has fallen too far. Field mark: it arrives, it is not held.
Free margin
What is left after margin is taken, not the margin itself. Field mark: rises when a position closes.
Profit margin
An accounting term for the share of revenue left as profit. Unrelated to trading collateral. Field mark: a percentage of sales, not of a position.

Where you meet it

In MetaTrader 4 and 5 the figure sits in the Terminal panel beside balance and equity. In cTrader it is shown per symbol in the order window before you confirm. In a broker statement it appears as margin held and is not part of the profit and loss line.[4]

References

  1. ↑ European Securities and Markets Authority, product intervention measures on contracts for differences for retail clients, 2018; made permanent by national regulators thereafter. Caps initial margin by instrument class.
  2. ↑ The 1:30 cap applies to major currency pairs; other classes carry lower limits. Figures outside the EEA, UK and Australia differ — check the regulator named on the broker's own disclosure.
  3. ↑ Stop-out thresholds are set by the broker and published in its trading terms; they are not fixed by regulation. Commonly 50 % of used margin in the EEA, but verify per account type.
  4. ↑ MetaTrader 4 and 5 terminal documentation, Trade tab; cTrader order window documentation. Field names vary slightly between builds.

See also

Families: II · Margin & leverageRiskAccount mechanics