Glossary
Margin
The deposit a broker holds as collateral to open and maintain a leveraged position.
Margin, explained
Margin is the portion of your funds set aside as a good-faith deposit to hold a leveraged trade. At 1:100 leverage, opening one standard lot requires about 1% of its value as margin; the broker reserves that amount while the position is open.
Margin is not a cost — it is returned when you close the trade — but it is locked up while the position runs. Used margin plus free margin equals your equity, and free margin is what is available to open new trades or absorb drawdown.
The margin level — equity divided by used margin, shown as a percentage — is the gauge brokers watch. A high margin level means plenty of cushion; as floating losses pull equity down, the margin level falls toward the broker's margin-call and stop-out thresholds.
Misunderstanding margin is how traders over-leverage: a small deposit can open enormous positions, but if the trade moves against you the broker can force it closed once margin runs low. The required margin looks tiny, which tempts people to open far more size than their account can safely carry through normal volatility.
On the desk we treat free margin as breathing room, not capacity to be filled. Keeping a large margin level means an open drawdown can swing against us without ever approaching a stop-out, which is exactly the buffer that keeps an account alive in a bad week.
Frequently asked questions
- Is margin a fee?
- No. Margin is collateral the broker holds while a trade is open and returns when you close it. It is locked up, not spent — though tying up too much of it leaves little free margin to absorb losses.
- What is the difference between used and free margin?
- Used margin is the amount reserved for your open positions; free margin is what is left over to open new trades or withstand floating losses. Together they sum to your equity.
Related terms
Leverage
Borrowed buying power that lets you control a large position with a small deposit — and that magnifies both gains and losses.
ReadMargin Call
A broker warning that your equity has fallen too low to support your open positions.
ReadEquity
Your account balance adjusted for the live profit or loss of all open positions.
ReadDrawdown
The peak-to-trough decline in your account — how far you fall from a high before making a new one.
Read
Put it into practice
Education modules
More terms in the glossary.
Vocabulary is the easy part. See how the desk turns these concepts into structured trades with defined risk on every position.