What is Margin in Forex?
Margin is the amount of money you need to have in your trading account to open and maintain a leveraged position. It is not a fee or a transaction cost; instead, it's a portion of your account equity set aside and frozen as a deposit.
Once you close the trade, the margin is"freed up" and returned to your available balance, along with any profits or minus any losses from the trade.
How Leverage Affects Margin
Leverage and margin are inversely related. Leverage allows you to control a large position with a small amount of money. The higher the leverage your broker offers, the lower the margin required to open a position.
For example, if you trade 1 standard lot of EUR/USD ($100,000 notional value):
* Note: Values assume an exchange rate of 1.0000 for simplicity. Actual margin scales with the real-time EUR/USD exchange rate.
How to Calculate Margin Manually
The formula to calculate the required margin in your account currency is:
Step-by-step example:
- You want to buy 1 standard lot (100,000 units) of GBP/USD.
- Your leverage is 1:100.
- The current GBP/USD exchange rate is 1.2500.
- Notional Value = 100,000 × 1.2500 = $125,000.
- Required Margin = $125,000 / 100 = $1,250.
If your account is in EUR, you would then convert that $1,250 into EUR at the current EUR/USD exchange rate. Our calculator handles all of this cross-currency conversion automatically.
Margin Level and Margin Calls
Understanding your required margin is critical to avoiding a margin call or stop out.
- Used Margin: The total amount of money currently locked up by your open trades.
- Free Margin: Your Equity minus your Used Margin. This is the money available to open new trades or absorb losses.
- Margin Level %: (Equity / Used Margin) × 100.
If your Margin Level drops below 100%, you can no longer open new trades (Margin Call). If it drops further (e.g., to 50% or 20%, depending on the broker), the broker will automatically close your trades (Stop Out) to prevent your account balance from going negative.