- Margin is a security deposit held by your broker to keep leveraged positions open — it is not a fee or cost
- Monitor your margin level constantly: when it drops below the broker's threshold, positions are forcibly closed
- Free margin is what you have available to open new trades or absorb floating losses on existing ones
- Never use more than a fraction of your available margin to maintain a healthy buffer against adverse price moves
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What is Margin?#
Margin is the amount of money your broker requires you to deposit in order to open and maintain a leveraged trading position. It acts as a security deposit — not a fee — that the broker holds while your trade is open.
Margin is not the cost of trading; it is collateral. When you close your trade, your margin is released back to your account (minus any losses, plus any profits).
Think of it like renting an apartment: the landlord (broker) requires a deposit (margin) before handing you the keys (open position). When you leave (close the trade), the deposit is returned.
Margin formula:
Required Margin = (Trade Size ÷ Leverage) × Account Currency Rate
Example: Opening 1 standard lot EUR/USD ($100,000) with 1:100 leverage:
- Required Margin = $100,000 ÷ 100 = $1,000
Types of Margin#
Your trading platform shows several margin-related figures:
| Term | Definition |
|---|---|
| Used Margin | Total margin currently locked in open positions |
| Free Margin | Account equity minus used margin — available for new trades |
| Equity | Balance + floating profit/loss of open positions |
| Balance | Account cash excluding open trades |
| Margin Level | (Equity ÷ Used Margin) × 100% |
Example with numbers:
- Balance: $5,000
- Open position using $1,000 margin
- Floating profit: +$200
- Equity = $5,000 + $200 = $5,200
- Used Margin = $1,000
- Free Margin = $5,200 − $1,000 = $4,200
- Margin Level = ($5,200 ÷ $1,000) × 100 = 520%
What is a Margin Call?#
A margin call occurs when your account's margin level drops to a level where the broker sends you a warning — or automatically begins closing your positions to prevent further losses.
How it happens:
- You open a large position relative to your account size
- The market moves against you
- Your equity drops, reducing your margin level
- At the Margin Call Level (e.g., 100%), the broker alerts you
- At the Stop Out Level (e.g., 50%), the broker forcibly closes your largest losing positions
XM Margin Call and Stop Out Levels:
- Margin Call: 50% (warning issued)
- Stop Out: 20% (positions automatically closed)
Margin Level#
Margin level is the most important metric for account health:
Margin Level = (Equity ÷ Used Margin) × 100%
| Margin Level | Status | Action Required |
|---|---|---|
| 1000%+ | Excellent | Continue trading normally |
| 500–1000% | Good | Monitor positions |
| 200–500% | Caution | Reduce exposure |
| 100–200% | Danger | Close some positions |
| Below 100% | Critical | Margin call imminent |
| Below 50% | Stop Out | Broker closes positions |
To maintain healthy margin levels:
- Open fewer or smaller positions
- Use wider stop losses only with proportionally smaller lot sizes
- Avoid opening correlated trades that all lose simultaneously
- Keep a buffer of at least 3–5× your required margin as free margin
Understanding margin is essential for keeping your account alive and trading with confidence. Many traders blow accounts not from bad analysis, but from poor margin management.
