Margin is the collateral side of the leverage coin. Where leverage defines how much you can borrow, margin defines how much of your own money the broker locks up as security. Most blown accounts don't die from a bad trade — they die from ignoring the margin mechanics until the broker force-closes the position.
This article explains what margin is, how your broker calculates the numbers you see on screen, and what a margin call actually means in practice.
The short answer
Margin is the portion of your account equity that the broker reserves as collateral while a leveraged position is open. You don't lose this money — it's held, not charged — and it's released when you close the position.
The amount of margin required is driven by your broker's leverage ratio:
Required margin = Position notional / Leverage ratio
A $100,000 position on a 30:1 account requires $100,000 / 30 = $3,333 of margin. The same position on a 500:1 account requires $200.
A margin call is what happens when your account equity falls below a percentage of your used margin — typically 50–100% depending on the broker. It's the broker's signal that you're running out of collateral.
The key vocabulary
Every trading platform shows you these four numbers. Understanding them is the difference between managing risk and being managed by the broker.
| Term | What it is |
|---|---|
| Balance | The total cash in your account ignoring open positions. Doesn't change until a position closes. |
| Equity | Balance + unrealized P&L. Changes on every tick if you have open trades. |
| Used margin | Collateral locked against your currently-open positions. |
| Free margin | Equity − Used margin. The buffer you have left to open new trades or absorb losses. |
| Margin level | (Equity / Used margin) × 100%. The headline number brokers watch. |
Margin level is the one that triggers events. Above 100%, you're safe — your equity covers your collateral with room to spare. Below 100%, you're technically under-collateralized. Below 50%, most brokers start force-closing positions.
A worked example
Account: $10,000 deposit, 30:1 leverage, no open positions.
- Balance: $10,000 · Equity: $10,000 · Used margin: $0 · Free margin: $10,000 · Margin level: — (undefined, no margin used)
You buy 1 standard lot of EUR/USD at 1.0850. Position notional: $108,500.
- Required margin:
$108,500 / 30 = $3,617 - Used margin jumps to $3,617.
- Free margin drops to
$10,000 − $3,617 = $6,383. - Margin level:
(10,000 / 3,617) × 100% = 276%. Comfortable.
Now EUR/USD drops 50 pips to 1.0800. Unrealized loss: 50 pips × $10/pip = −$500.
- Equity: $9,500
- Used margin: still $3,617 (the broker re-evaluates margin against the current price but the change is small on a 50-pip move — for simplicity ignore this)
- Free margin:
$9,500 − $3,617 = $5,883 - Margin level:
(9,500 / 3,617) × 100% = 263%. Still fine.
EUR/USD keeps dropping — 200 pips. Unrealized loss: $2,000.
- Equity: $8,000
- Margin level:
(8,000 / 3,617) × 100% = 221%. Still safe.
At what point does a margin call happen? Roughly when equity falls to the broker's margin-call threshold — typically 100% of used margin. For this example, that's when equity hits $3,617 — a loss of $6,383, or about 638 pips on one lot. You'd have to lose $6,383 on a $10,000 account before the first warning.
This is why margin calls are almost never a surprise on properly-sized positions. They're a symptom of catastrophic over-sizing, not ordinary trading losses.
Margin call vs stop-out
These are two different events, often confused.
- Margin call is a warning. The broker notifies you — email, platform pop-up, sometimes a phone call on large accounts — that your margin level has fallen below their threshold (commonly 100%). You can still trade. You should probably not.
- Stop-out is an automatic liquidation. When your margin level falls below a lower threshold (commonly 50%), the broker starts closing your positions at market — usually the most-losing one first — until your margin level is restored above the threshold.
Broker examples:
| Broker | Margin call | Stop-out |
|---|---|---|
| IC Markets | 100% | 50% |
| Pepperstone | 90% | 20% |
| FXTM | 80% | 50% |
| Interactive Brokers | varies | varies |
Stop-out levels matter in gap events. If price gaps past your stop-out threshold over the weekend, the broker might close your position at a worse price than the stop-out number suggests. Negative balance protection (EU/UK retail) prevents your account from going below zero; without it, you could theoretically owe the broker money.
Why the same position uses different margin at different brokers
Three variables affect your used margin:
1. Leverage ratio. As above. The single biggest factor. 500:1 account uses 1/500 the margin of a 1:1 cash-equity position. Same risk, different collateral.
2. Instrument class. Most brokers apply different leverage caps by instrument:
- Major FX pairs: 30:1 (EU) or up to 500:1 (offshore)
- Minor/exotic FX pairs: 20:1 or 10:1
- Gold/silver: 20:1 or 10:1
- Indices (S&P 500, DAX): 20:1 or 10:1
- Commodities (oil, gas): 10:1 or 5:1
- Crypto CFDs: 2:1 (EU) or up to 10:1
A €10,000 BTC/USD position on a 2:1 crypto-leverage account consumes €5,000 of margin — half your account, for a single position.
3. Position direction + hedging. Some brokers net margin between hedged positions (long 1 lot + short 1 lot = $0 net margin used). Others charge full margin on both sides. Check your broker's hedging policy before running any pairs strategy.
Pre-trade checks for your margin
Before opening any position, ask:
- Required margin for this size:
Notional / Leverage. Does it fit in my free margin with room? - Effective leverage:
Position notional / Equity. Is this within my personal cap (typically 5–10:1)? - Stop-loss in money: How much cash at risk on this trade? (See position sizing.)
- Total exposure: Sum of notional across all open positions. Am I concentrated?
Your MT5 order ticket shows the first two automatically. The last two you have to track yourself — or let an EA's risk layer track for you.
What to do with this
Three concrete takeaways:
-
Watch margin level, not balance. If you glance at your account once per trading session, make it the margin level. 200%+ is comfortable. Below 150% means you should not open new positions. Below 100% means reduce size immediately.
-
Keep free margin above 50% of equity at all times. This is the rule that survives any adverse scenario except a gap event. Traders who violate this habitually blow accounts during normal volatility, not "black swan" moves.
-
Know your broker's specific thresholds. Margin-call and stop-out levels vary. Most brokers publish them in the "Contract Specifications" or "Trading Conditions" section of their site. Read them once, write them down, never assume the next broker uses the same numbers.
Margin isn't complicated. The math is arithmetic. But the mechanic only kicks in when something is wrong, so beginners treat it as an edge case — right up until the first time it actually fires. Pay it attention while things are calm.
Related reading
- What Is Leverage in Trading? — the other side of the coin
- What Is Position Sizing in Trading? — how to size so margin calls never happen
- What Is Drawdown in Trading? — drawdown vs margin call, and why they're different