what is · beginner
What Is Margin in Forex? (And How Margin Calls Actually Work)
Margin is the part of leverage that nobody explains properly. Get it backwards and you'll think you can trade ten times more than you actually can. Get it right and you'll never get caught off guard by a margin call.
Margin is the chunk of your account the broker freezes as collateral while a leveraged position is open. It's not a fee. It's not a loss. It's just money the broker is holding hostage to make sure you can cover potential losses on the trade. The moment you close the position, the margin is released back to your free balance.
Here's how it works in real numbers. With 1:100 leverage, a $100,000 EUR/USD position requires 1% margin — $1,000 of your account gets locked while the trade is open. With 1:50 leverage, the same trade requires 2% margin — $2,000 locked. With 1:500 leverage, only 0.2% margin — $200 locked. Notice that the position size and dollar exposure are identical in all three cases. Only the amount of "collateral hold" changes. This is why leverage isn't really about how much you can win or lose — it's about how much capital the broker requires you to set aside.
Your account always shows two numbers that matter: balance (the total in the account) and equity (balance plus or minus open trade P&L). Used margin is what's locked. Free margin is balance minus used margin. Margin level (the most important number) is equity divided by used margin times 100%. So a $10,000 account with $1,000 of margin used and a $200 floating loss has $9,800 equity, $1,000 used margin, $8,800 free margin, and 980% margin level.
A margin call happens when your margin level drops below a certain threshold (usually 100% or 50%, depending on the broker). At that point, the broker either warns you to add funds or starts force-closing your trades to prevent further losses. The exact trigger varies — some brokers warn at 100% and stop-out at 50%, some warn at 50% and stop-out at 20%. The Candleread desk recommends staying above 500% margin level at all times. Below 200% means you're trading too big for the account, and you need to either close some positions or deposit more.
The single best way to avoid margin issues entirely: size positions based on risk per trade, not on how much margin you have available. If you're risking 1% per trade with hard stops, your margin level will naturally stay healthy because no single losing trade can dent the account meaningfully. Margin calls only happen to traders who oversize positions and refuse to take losses.
Key takeaways
- ✓Margin is the collateral your broker locks while a position is open
- ✓Higher leverage = lower margin required for the same position
- ✓Margin level = equity / used margin x 100% — keep it above 500%
- ✓Margin calls force-close your trades when level drops too low
- ✓Risk-based position sizing prevents margin calls automatically
Frequently asked
What's the difference between margin and leverage?+
Leverage is the ratio (1:100, 1:500). Margin is the dollar collateral that ratio implies (1%, 0.2%). They're two ways of describing the same thing. Higher leverage means lower margin requirement, which means smaller deposits can control larger positions.
What happens during a margin call?+
First, the broker warns you (email, popup, phone call). If equity keeps dropping, the broker starts force-closing your worst trades automatically — usually starting with the biggest loser. The goal is to stop the bleeding before equity goes negative. You don't get to choose which trades close.
Can I avoid a margin call by adding more money?+
Yes — depositing more funds raises equity and improves the margin level. But this is fixing the symptom, not the disease. If you're hitting margin calls, your position sizing is too aggressive. Add funds AND size down, or you'll hit another one soon.
What's a good margin level to maintain?+
Above 500% is healthy. 200-500% means you're trading on the larger side and need to be careful. Below 200% is the danger zone — you're one bad trade from a margin call. Below 100% you're already in trouble. Pros target 1000%+ as their normal operating range.