What Is Margin in Trading?
Margin is a good faith deposit required by your broker to open and maintain a leveraged position. It is not a fee or a transaction cost; rather, it is a portion of your account equity set aside and allocated as a margin deposit.
How Leverage Affects Margin
Leverage allows you to control a large position with a relatively small amount of money. The higher your leverage, the lower the margin requirement.
Example: Buying 1 Standard Lot (100,000 units) of EUR/USD
- At 1:1 Leverage (No Leverage): 100,000 EUR required
- At 1:30 Leverage (Retail EU/UK): 3,333.33 EUR required
- At 1:100 Leverage: 1,000 EUR required
Free Margin vs Used Margin
Once you open a trade, the required margin becomes your Used Margin. The remaining equity in your account is your Free Margin. If a trade moves against you and your equity drops below your Used Margin, you may receive a Margin Call or face an automatic Stop Out.