What Is Margin?

Margin is the amount of funds required to open and maintain a leveraged trading position.

Margin is not normally the total value of the trade.

It represents a portion of the overall market exposure.

Margin example

Suppose you want to open:

$20,000 of market exposure

with:

1:20 leverage

A simplified margin calculation is:

$20,000 ÷ 20 = $1,000

Required margin:

$1,000

Margin percentage

The same requirement can also be expressed as a percentage.

1:20 leverage corresponds mathematically to:

5% margin

because:

1 ÷ 20 = 0.05 = 5%

Examples:

Used margin

Used margin refers to funds currently allocated to support open leveraged positions.

Opening additional positions can increase the amount of margin being used.

Free margin

Free margin generally represents funds available beyond those currently being used as margin.

A simplified concept is:

Free Margin = Equity − Used Margin

Free margin can be used to:

• Support existing positions

• Absorb losses

• Open additional positions, where permitted

Equity

Equity generally reflects the current value of the trading account after including unrealised profit or loss on open positions.

A simplified relationship is:

Equity = Balance + Unrealised Profit/Loss

As open positions gain or lose value, equity changes.

Why margin matters

A leveraged trader needs sufficient account equity to support open positions.

If losses reduce equity significantly, the amount available to support those positions can become insufficient.

Lesson summary

• Margin is the amount required to support leveraged positions.

• Required margin is only part of the total market exposure.

• Used margin supports current positions.

• Free margin reflects remaining available equity beyond used margin.

• Falling account equity can reduce available margin.