Margin

Margin is the deposit your broker locks as collateral when you open a leveraged position. It is not a fee and it is not money you spend — it is a good-faith reserve that stays tied up until you close the trade, then returns to your balance. There are two flavors you need to keep straight. Initial margin is the amount required to open the position. Maintenance margin is the lower threshold your equity must stay above to keep it open; drop below that line and the broker starts issuing warnings or closing you out.

How it's calculated

Required margin is a function of the position's notional value and how much leverage you're using. The bigger the notional or the lower the leverage, the more capital gets locked.

Say you buy 1 standard lot of EUR/USD at 1.1000. The notional is 100,000 × 1.1000 = $110,000. At 30:1 leverage, the required margin is $110,000 ÷ 30 = $3,667. That's the deposit locked the moment you open — not your risk, just the collateral.

Two numbers flow from this. Free margin is your equity minus the margin already tied up in open positions; it's the buffer available to absorb losses and open new trades. As price moves against you, unrealized losses eat into equity, free margin shrinks, and your margin level (equity ÷ used margin, as a percentage) falls. When it hits the broker's threshold — often 100% for a warning and 50% for liquidation — you get a margin call: either post more funds or the broker force-closes positions to protect itself.

Why it matters

New traders anchor on account size. What actually determines how close you are to a forced liquidation is margin usage — how much of your equity is already committed as collateral versus how much is free to absorb drawdown.

Two traders with $10,000 accounts are in completely different situations if one has used $500 of margin and the other $8,000. The second trader has almost no buffer; a modest adverse move wipes out their free margin and triggers a liquidation, regardless of whether their stop-loss would have been perfectly reasonable in isolation.

This is the distinction that trips people up: margin is not risk. Margin is what the broker demands to let you hold the position. Risk is how much you actually lose if price hits your stop. You can post a small margin and still take on catastrophic risk with a wide stop and a large size — or post heavy margin on a tightly-stopped trade that risks very little. Sizing to a fixed percentage of risk, not to available margin, is what keeps you solvent. A position size calculator does that math before you click.

Related concepts

Margin sits at the center of a cluster of leverage mechanics. Leverage is the ratio that sets your margin rate. Lot size determines notional, which drives the required margin. And position sizing is the discipline that decouples your risk from whatever margin the broker happens to require — the thing that actually keeps a margin call from ever arriving.

Once you're in live trades, watching margin usage in the moment isn't enough. Reviewing how tight you ran your free margin across a losing streak is where the real lessons hide. The Tradeways journal logs every position's margin footprint alongside its outcome, so you can see whether it was your edge or your collateral management that let you down.