What is margin?

Margin is a deposit that is required with leverage trading. These are funds that are “frozen” on your account before the trade is closed and are needed to secure positions.

The exact margin amount depends on both the size of the position and the leverage you choose.

To calculate it you can use the formula:
Trade size in units / Leverage = Margin in base currency
Trade size in units / Leverage X Exchange rate = Margin in quote currency

Now let's see how the amount required depends on the chosen leverage:

• Higher leverage → Fewer funds needed as a margin
• Lower leverage → More funds needed as a margin

So, if you want to buy one standard lot (€100,000) for EUR/USD, without using any leverage (1:1), you need to have €100,000 on your account.

However, with a leverage of 1:100, you only need €1000 as the required margin. With 1:200, you will need €500, and with a leverage of 1:400 - only €250.

At the end of this topic, let’s learn a few basic terms that are important to understand.

Free margin is the amount on a trading account that is not currently being used and for which you can open new trades.

[Free margin = Account balance - Used margin]

Equity is the balance of your trading account, plus (or minus) profits (or losses) from any open positions that you have.

The margin level is the ratio of the amount of your deposit to the used margin.

When the margin level drops to 100%, that means the entire balance of your trading account is used as collateral, and you can no longer open any other positions.

Stop Out is a forced automatic closing of all trader's positions in case that person's trading account balance falls below a certain level (it is fixed depending on the platform and the jurisdiction of FxPro account).