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Margin

Also called: Used margin · Required margin · Free margin

Margin — The portion of your balance reserved while a position is open — your own money, moved from free to used, and returned in full when you close.

Margin is not a fee, not a loss, and not money you have spent. It is your own balance reclassified as unavailable for the life of a position. The reason it matters is what is left over — free margin is what absorbs the trade going against you, and running out of it is how accounts end.

In plain English

Open a position and your broker sets aside part of your balance against it. That reserved amount is used margin; what remains is free margin. Close the position and the reserved amount returns, in full, whether the trade won or lost. Nobody charges you for it.

How much gets reserved depends on the position value and your leverage. At 1:100, a position worth 100,000 units reserves 1,000. What trips people up is the step before that: what exactly is the position worth, and in which currency.

For a currency pair, the answer is the base currency — the first one in the pair. One lot of EUR/USD is 100,000 EUR, not 100,000 dollars, and its value does not change when the price moves. For gold, indices and crypto CFDs the contract is priced in the quote currency, so the value is lots × contract size × price and it does move with every tick. Collapsing those two cases into one formula is the most common error in margin arithmetic, and it puts a EUR/USD answer out by exactly the current price.

The formula

Worked example — the demo account

Margin is not recorded in a statement, so this is worked from stated inputs rather than from the demo account. One lot of EUR/USD at 1.0850, leverage 1:100, a 10,000 USD account.

$1,085 reserved, $8,915 free. The price entered once, at the end, to convert a EUR figure into a USD account.

Compare that with the same lot of gold, where the contract is 100 ounces at roughly 2,650 dollars — a contract value of 265,000 USD and a margin of 2,650 USD at the same leverage. Nearly two and a half times the forex figure, from the same lot size and the same leverage setting, purely because the contracts denominate different things.

Now try it at 1:30, the EU retail cap: the gold position needs 8,833 USD of an account that holds 10,000. Which is the arithmetic way of saying a 10,000 account cannot trade a full lot of gold under EU rules at all.

Every figure above is from the demo account TapeSheet ships with — 96 closed trades, generated from a fixed seed. Open the same account →

What this does not tell you

The caveat is the part worth reading. Most tools put it in a footer, if they print it at all.

• It is not your risk. Margin says what is reserved; risk says what a stop-loss will cost. They are unrelated numbers and the second one is the one to size by. If margin is what limits your position size rather than risk, the position was already too big.
• It is not a cost. The money comes back in full. What it costs you is optionality — capital held as margin cannot open another position and cannot absorb a loss on the one it is holding.
• It does not stay fixed. Many brokers raise margin requirements ahead of weekends, before major announcements, and on some instruments intraday. A position comfortable on Friday morning can be near a stop-out on Friday evening without the price having moved at all.
• It says nothing about the stop-out order. When a stop-out triggers, most brokers close the position with the largest floating loss first — not the one you would have chosen, and not necessarily the one causing the problem.

Where TapeSheet shows it

Not shown, and deliberately: a statement records what happened to your trades, not what was reserved while they were open, so any margin figure TapeSheet displayed would be reconstructed from assumptions about your leverage. The margin calculator does it properly, from inputs you supply.

Questions

Related terms

• Leverage — The ratio between the size of a position and the margin it requires — a limit on what you may open, and not, by itself, a measure of risk.
• Margin call — The point at which your equity has fallen far enough against your used margin that the broker warns you — and, a little further down, closes your positions for you.
• Lot — The unit of position size in forex — one standard lot is 100,000 units of the base currency.
• Position sizing — Deciding how many lots to trade from how much you are willing to lose — the single decision that most determines whether an edge survives long enough to pay.

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