Margin and Margin Level, Reading Your Account's Health

[Fairman]

Margin and Margin Level, Reading Your Account's Health

Margin is the amount of money your broker sets aside from your account to keep your positions open. Understanding it helps you avoid unpleasant surprises, like forced closures.

Key terms:

- Balance: your account amount without open trades
- Equity: balance plus or minus floating profit or loss
- Used margin: funds reserved for open positions
- Free margin: equity minus used margin, the amount available for new trades
- Margin level: equity divided by used margin, shown as a percentage

Example: equity $1,000, used margin $200. Margin level is 500%. Free margin is $800.

Why it matters:

If floating losses grow, equity falls, and margin level drops. Brokers have thresholds: a margin call warning and a stop-out level at which they begin closing positions automatically. These levels differ by broker.

How to stay safe:

1. Size by risk, not by available margin. If your stop-loss risk is 1%, margin will usually stay comfortably high.

2. Keep margin level high. Many traders keep it well above several hundred percent.

3. Avoid opening many correlated positions.

4. Know your broker's levels. Check the terms.

5. Don't treat free margin as spendable. It's a cushion, not a target.

If your margin level is ever approaching danger, you have already taken too much risk.

Let risk rules, not margin limits, decide your position size.

[Fairman]

Quick worked example on margin level. Equity 1,000, used margin 200, so margin level is 500%. Open a few more trades and used margin goes to 600 while equity drops to 800 on floating losses. Now you're at about 133%. That's the speed at which it can get uncomfortable, and it's why I keep an eye on the number, not just balance.

[LondonNewsTrader]

Your example checks out: 1,000 equity over 200 used margin is 500 percent, with 800 free.

The part people don't plan for is the broker changing the margin requirement rather than price moving. Before elections, referendums, central bank meetings where something unusual is possible, or long weekends, some brokers cut the leverage on affected pairs at short notice. If leverage on a position goes from 30:1 to 10:1, used margin triples. In your example it goes from 200 to 600 and the margin level drops from 500 percent to about 167 percent without a single pip of movement.

That is why your first point matters most. If size is set by stop-loss risk, a margin change is an inconvenience. If size was set by what the free margin allowed, it can turn into a stop-out at the worst moment.

[Fairman]

Small thing to keep an eye on: free margin is what you can still use for new trades. When people say I have plenty of margin, they're often looking at balance. Check free margin, that's the number that tells you how much room you actually have. Free margin also drops with floating losses, not just with new trades. So an account with 1,000 balance, 300 used margin and 400 of floating losses has only 300 free margin, even though the balance still shows 1,000. If losses grow further, margin level falls fast. Watch equity and free margin during the trade, not the balance line at the top.