What Is Margin in Forex? The Deposit You Lock Up
Margin is not a fee. It is collateral your broker holds while your trade is open.
Researched and written by Laurent What Margin Is (And Isn't)
When you use leverage to open a trade, your broker doesn't just hand you $100,000 for free. It requires you to put up a deposit called margin. This margin is locked in your account while the trade is open. You get it back when you close the trade.
The formula is simple:
Required Margin = Position Size / Leverage
(100,000 / 100)
(100,000 / 30)
(10,000 / 100)
Footnote: in reality, margin for EUR/USD is computed on the EUR notional (100,000 EUR is about $108,000 at a rate of 1.08), so the true 1:30 figure is closer to $3,600. The simplified $3,333 above is approximate.
Understanding Your Account Numbers
Your trading platform shows several important numbers. Here's what they mean:
| Term | What It Means | Example |
|---|---|---|
| Balance | Your account value with all closed trades settled | $5,000 |
| Equity | Balance + unrealized profit/loss on open trades | $5,120 (trade is +$120) |
| Used Margin | Margin locked up by open trades | $1,000 |
| Free Margin | Equity - Used Margin = money available for new trades | $4,120 |
| Margin Level | (Equity / Used Margin) x 100% | 512% |
The margin level is the critical number. As long as it stays above 100%, you're generally safe. When it drops toward 100%, you're in danger. Below 50% (at most brokers), your trades start getting forcibly closed.
Key Takeaways
- • Margin = the amount of your money the broker "locks up" as collateral for a leveraged trade.
- • Required margin = position size / leverage.
- • Free margin = equity - used margin = the money available for new trades.
- • If free margin drops too low, you face a margin call.