What Is Margin in Forex? Free Margin, Used Margin Explained
Margin is not a fee — it is a deposit that enables leverage. Understanding it prevents the most common sizing mistakes.
Margin is one of the most misunderstood concepts for new traders. It is not a fee, not a loan, and not a cost. It is a security deposit — a portion of your account balance that your broker holds while a trade is open.
The four margin terms
Required margin (used margin): the amount set aside to maintain your open positions. Calculated as: position size ÷ leverage.
On a 1:100 account, opening one standard lot (100,000 units) of EUR/USD requires 100,000 ÷ 100 = $1,000 margin.
Free margin: your account equity minus used margin. This is the money available to open new positions or absorb losses on existing ones.
Equity: your balance plus or minus any unrealised profit/loss on open trades.
Margin level: (equity ÷ used margin) × 100%. A healthy margin level is typically above 200–500%. Below 100%, you are in margin call territory.
Margin and leverage are the same relationship
Margin requirement = 1 ÷ leverage, expressed as a percentage.
| Leverage | Margin requirement | Margin on 1 standard lot |
|---|---|---|
| 1:10 | 10% | $10,000 |
| 1:30 | 3.33% | $3,330 |
| 1:100 | 1% | $1,000 |
| 1:500 | 0.2% | $200 |
Lower leverage = higher margin requirement = more of your balance is set aside per position.
Free margin is the number to watch
Free margin tells you how much buffer you have. When free margin approaches zero, any further losses trigger a margin call.
A trader who opens multiple positions using most of their balance has very little free margin. A single losing position that reduces equity can cascade into a margin call across all positions simultaneously.
Margin per trade vs total account margin
Each open position has its own used margin. Total used margin is the sum of all positions. Free margin is the account equity minus this total.
Monitoring free margin rather than just individual position sizes gives you a realistic picture of your account's resilience.
Frequently Asked Questions
Is margin the same as leverage?
They are two sides of the same relationship. Leverage is the ratio (1:100). Margin is the deposit that leverage implies (1% of the position). High leverage means low margin requirement — and more risk per unit of capital.
What happens to my margin when I close a trade?
The used margin for that position is released and becomes free margin again. If the trade was profitable, your balance increases; if a loss, your balance decreases. Either way, the margin itself returns.
Can I use margin across multiple currency pairs?
Yes. Each open position has its own used margin. The total across all positions is your total used margin. Brokers calculate this across the entire account, not per pair.
Does margin protect me from losing more than my deposit?
Negative balance protection — offered by most regulated retail brokers — ensures you cannot lose more than your deposited balance. The stop-out closes your positions before equity reaches zero. However, during extreme events, gaps can cause losses beyond expected levels; protection policies vary by broker.
Why do different pairs have different margin requirements?
Some brokers apply different leverage limits to different instruments based on volatility and regulatory requirements. Exotic pairs and gold sometimes have higher margin requirements (lower leverage) than major forex pairs.
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Not financial advice. This article is educational. Trading carries substantial risk and you can lose more than your deposit. See our risk disclaimer.
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