Margin in forex trading explained
By Ken Chigbo, Founder, KenMacro. Published 2026-05-13.
Quick answer
Margin is the deposit a broker locks up as collateral to let a trader open and hold a leveraged position. It is not a fee or a cost, it is a portion of account equity reserved against the trade. When the position closes, the margin is released back into the free balance.
What is margin?
Margin in forex is the portion of account equity a broker sets aside as collateral when a trader opens a leveraged position. It is expressed either as a currency amount or as a percentage of the notional trade size, calculated directly from the leverage ratio. For example, 1:100 leverage requires one percent margin, while 1:30 requires roughly 3.33 percent. The margin is not spent or paid to the broker, it is ringfenced inside the account for the life of the trade and returned to free balance once the position is closed.
How traders use margin
Retail traders watch margin through three figures on the platform: used margin, free margin, and margin level. Used margin is the collateral currently locked against open trades. Free margin is the equity still available to open new positions or absorb floating losses. Margin level, shown as a percentage, is equity divided by used margin, and it drives margin call and stop-out thresholds set by the broker. Institutional desks treat margin as a capital efficiency metric, sizing positions so that aggregate used margin stays well below equity, leaving room for adverse excursions. Disciplined traders rarely let margin level fall below several hundred percent, because thin free margin forces involuntary liquidation precisely when volatility is highest.
Worked example of margin on a EUR/USD trade
Consider a trader opening one standard lot of EUR/USD, a notional value of 100,000 euros, with EUR/USD quoted at 1.0850. The notional in account currency is roughly 108,500 USD. On a 1:30 leverage account, the required margin is 108,500 divided by 30, or about 3,617 USD. On a 1:500 account it falls to roughly 217 USD. The trade itself is identical in both cases, the same pip value, the same exposure to price moves. Only the collateral requirement differs. Higher leverage frees up margin but does not change underlying risk, which is determined by position size, not by the margin posted.
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Frequently asked
What happens when margin level falls too low?
When margin level drops below the broker’s margin call threshold, typically around 100 percent, the platform warns the trader that free margin is exhausted. If equity continues to fall and margin level reaches the stop-out level, often 50 percent, the broker begins closing positions automatically, usually starting with the largest losing trade. This protects both the broker and the client from negative balances, though it forces exits at unfavourable prices.
Is margin a cost or a fee?
No. Margin is not a payment to the broker, it is collateral held inside the trader’s own account. The full amount is returned to free balance when the position closes. The genuine costs of holding a leveraged position are the spread, any commission, and overnight swap or financing charges. These are deducted from equity, whereas margin simply moves between used and free columns on the account.
Does higher leverage make a trade riskier through margin?
Indirectly, yes. Higher leverage lowers required margin, which tempts traders to open larger positions than their equity can safely support. The risk lives in position size, not the margin number itself. A trader using 1:500 leverage but sizing trades as if on 1:30 carries the same risk profile. Problems emerge when traders treat low margin requirements as permission to scale up exposure, leaving little free margin to absorb normal volatility.
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