Margin is the deposit a broker sets aside when you open a leveraged position. A margin call is the warning that comes when losses have shrunk your account so much that this deposit is no longer adequately covered. Understanding the terms helps make sense of a moment many new traders only meet the hard way.
The key terms
- Leverage: controlling a position larger than your deposit.
- Used (required) margin: the amount held back to keep current positions open.
- Equity: your balance plus or minus the profit or loss on open positions.
- Free margin: equity minus used margin — the room left for new trades or further losses.
- Margin level: equity divided by used margin, usually shown as a percentage.
What triggers a margin call
As an open position loses money, equity falls. When the margin level drops below a threshold set by the broker, you may receive a margin call: a notice that you need to add funds or reduce positions. Thresholds differ between providers and are set out in their terms.
Stop-out: the next step
If losses continue and the margin level falls further, many brokers close positions automatically — a stop-out — usually starting with the largest losing trade. This can lock in a loss at an unfavourable moment.
How traders reduce the risk
- Use smaller position sizes relative to the account (see lot sizes).
- Decide an exit point before entering a trade.
- Avoid using all available leverage just because it is offered.
- Keep an eye on positions around major news releases.
Our guide to forex risk management puts these together.
Background knowledge only. Margin trading can lead to rapid losses; read your provider’s terms and consider independent advice.
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