In forex trading, margin is the amount of money a trader must deposit to open and maintain a leveraged position.
Think of margin as a “good-faith deposit” that your broker holds while your trade is active.
It’s not a cost—it’s simply a portion of your capital set aside to support your position.
How Does Margin Work?
Margin is closely connected with leverage.
When you trade with leverage, your broker requires a small part of the total trade value as margin.
For example:
If you use 1:100 leverage to open a $100,000 position, your required margin might be only $1,000.
The broker uses this amount as collateral while you control a much larger trade in the market.
Types of Margin in Forex Trading
There are several types of margin you may encounter:
1. Initial Margin
This is the minimum amount needed to open a new trade.
Without the initial margin, your broker won’t allow the position to be executed.
2. Maintenance Margin
This is the minimum amount required to keep your trade open.
If your account balance drops below this level, you may face a margin call.
3. Free Margin
Free margin is the remaining usable balance in your trading account after holding active positions.
You can use free margin to open new trades.
4. Used Margin
This is the amount of your balance locked as collateral for the trades you currently have open.
What Is a Margin Call?
A margin call occurs when your account equity falls below the required margin.
This usually happens when your trades move against you and your broker needs more funds to secure the positions.
If you don’t add funds or close losing trades, the broker may automatically close your positions to protect you from going into a negative balance.
Why Is Margin Important for Traders?
Margin affects:
- How many positions you can open
- How long you can keep trades active
- How much risk you can take
- How quickly losses can impact your account
Understanding margin helps traders avoid overleveraging and unexpected liquidations.
Common Mistakes Traders Make With Margin
✔ Opening too many positions at once
✔ Using high leverage without proper risk management
✔ Ignoring the free margin level
✔ Trading large lot sizes with a small account
These mistakes often lead to margin calls and rapid account depletion.
How to Manage Margin Safely
To protect your account, always:
- Monitor your margin level regularly
- Use moderate leverage
- Apply stop-loss orders
- Avoid oversized trades
- Keep extra funds in your account to prevent margin calls