Margin: definition | Glossary

Not a fee, but funds set aside:margin's the stake while your trade is live.

The collateral required to open and maintain a leveraged position, expressed as a percentage of the full trade value.

Margin is not a cost: it is a portion of your equity set aside as a deposit.

In plain words

Margin is the part of a trader’s own funds that a broker sets aside as security while a leveraged position is open. It is a deposit held against the position, released when the position is closed, and it is not a fee.

Formula

margin = notional value ÷ leverage

See it move

Make the part larger or smaller

Used margin is about a fifth of Account equity (as in the lesson)

The account’s equity is drawn as a whole with the margin in use as one fifth of it; the rest of the ring is what remains free.To try it, point at the diagram, drag a finger across it or use the slider: make the part larger or smaller.

Why it matters

The margin required decides how large a position an account can open and how much is left over to absorb losses. If losses reduce the account’s equity towards the margin in use, the broker may issue a margin call or close positions.

Worked example

An example only. The figures are round and invented for the arithmetic: they are not market prices.

An account has equity of 5,000 US dollars and opens one standard lot of a pair priced at 1.0000 against the dollar, with leverage of 1:100.

1Notional value100,000 × 1.0000 = 100,000 US dollars
2Margin at 1%100,000 × 0.01 = 1,000 US dollars
3Free margin5,000 − 1,000 = 4,000 US dollars

One fifth of the account is held as margin and 4,000 US dollars remains free.

A common mistake

Margin is not the most that can be lost on a trade. The loss is calculated on the full position and can be larger than the margin held for it.

Check yourself

Learn more

Academy lessonLeverage and marginHow leverage ratios, required margin, margin calls and stop-outs work, with the arithmetic that shows why losses scale exactly as gains do.

Educational information, not investment advice or a recommendation to trade.