Margin

Margin is the amount of funds a trader must provide in their account to open a specific leveraged position. It is neither a fee nor a cost deducted from the account, but rather a portion of funds held temporarily as collateral for as long as the trade remains open.

Required margin is typically calculated by dividing the total value of the position (lot size multiplied by the asset price) by the leverage ratio used. The higher the leverage ratio, the lower the margin required for the same position size, and vice versa.

Once the trade is closed, the held margin is automatically released and returns to the available account balance, adjusted for any profit or loss resulting from the closed position.

Margin is closely related to other key concepts such as free margin and margin level, which determine a trader's ability to open new positions or indicate how close the account is to facing a forced stop-out.

A common mistake is using most of the account balance as margin to open large positions. This leaves very little free margin, leaving the account vulnerable to margin call warnings or even forced liquidations at the first slight adverse move in the market.