Margin account explained: leverage and deposits
By Ken Chigbo, Founder, KenMacro. Published 2026-05-13.
Quick answer
A margin account is a brokerage account that lets a trader open positions worth more than the cash deposited, by posting a fraction of the trade value as collateral. The broker effectively lends the rest, charging interest or swap. It enables leveraged exposure but also exposes the trader to margin calls and forced liquidation.
What is margin account?
A margin account is the standard account type for trading forex, CFDs, and futures, where the trader deposits collateral, known as margin, rather than the full notional value of each position. The broker funds the remaining exposure and monitors equity against required margin in real time. Regulated brokers in the UK and EU cap retail leverage at thirty to one on major pairs, while offshore venues offer far higher ratios. Margin accounts contrast with cash accounts, which require full payment for every position and cannot generate leveraged exposure or short sales.
How traders use margin account
Retail traders use margin accounts to size positions appropriately for short-term directional trades, scalps, and swing setups that would otherwise demand impractical capital. A standard lot of EUR/USD carries roughly 100,000 units of notional value; at thirty to one leverage, the trader posts around 3.3 percent of that as required margin. The desk watches two figures continuously: free margin, which is equity minus used margin, and the margin level percentage, which brokers use to issue margin calls and stop-outs. Institutional desks operate similar mechanics through prime brokerage agreements but negotiate haircuts and cross-margining across asset classes. Both segments rebalance position size when volatility expands, because higher implied moves consume free margin faster and shorten the distance to forced liquidation.
Common misconceptions about margin accounts
The first misconception is that margin equals borrowed cash transferred to the trader. It does not; margin is collateral pledged against an open position, and the broker books the full exposure internally. The second is that higher leverage means higher returns. Leverage only changes position size relative to deposit; the win rate and edge of the strategy remain unchanged, while drawdown sensitivity rises sharply. The third is that a stop-loss order guarantees the loss is capped at the stated level. During gaps or low liquidity, fills can occur well beyond the stop, and the margin account absorbs the slippage.
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Frequently asked
What is the difference between a margin account and a cash account?
A cash account requires the trader to pay the full value of every position upfront and prohibits short selling or leveraged exposure. A margin account allows leveraged positions by posting a fraction of notional value as collateral, with the broker funding the remainder. Margin accounts also permit short positions because the broker handles the underlying borrow. Most forex and CFD brokers offer only margin accounts, since the products themselves are inherently leveraged derivatives.
How is required margin calculated on a forex trade?
Required margin equals the trade notional divided by the leverage ratio, then converted into the account currency. For a one-lot EUR/USD position at thirty to one leverage, notional is 100,000 euros, so margin required is roughly 3,333 euros, or its equivalent in the deposit currency at current spot. Brokers display this figure in the order ticket before execution. Exotic pairs and CFDs on indices or commodities typically carry higher margin requirements due to wider volatility bands.
What triggers a margin call on a margin account?
A margin call is triggered when account equity falls to a broker-specified percentage of used margin, often between fifty and one hundred percent. At that threshold the broker notifies the client and may restrict new orders. If equity continues to decline toward the stop-out level, typically twenty to fifty percent depending on jurisdiction, the broker closes positions automatically, starting with the largest loser, until the margin level recovers above the threshold.
Do margin accounts charge interest on the leveraged portion?
In forex, the financing cost appears as the daily swap or rollover, which reflects the interest rate differential between the two currencies plus a broker markup. CFD positions on indices, shares, and commodities are charged an overnight financing fee benchmarked against a reference rate such as SOFR or SONIA plus a spread. Intraday positions closed before the rollover cut, usually 5pm New York time, generally avoid these charges, although some brokers apply them on weekend carry.
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