Before you read on: this article is general education, not financial advice. It does not consider your objectives, finances or experience. Do your own research, check any broker on its regulator’s register, and speak to an independent adviser if you are unsure.
Last updated 29 October 2026.
Margin is the deposit a broker holds against your open positions. If your account falls too far below what the broker requires, you receive a margin call, or the broker closes positions for you. Understanding margin is the difference between a controlled loss and an account that disappears overnight.
Margin, used margin and free margin
Used margin is the amount locked up by your open positions. Equity is your balance plus or minus the floating profit or loss on open trades. Free margin is equity minus used margin. It is what you have available to open new positions or to absorb losses before a problem arises.
Margin level = equity ÷ used margin × 100%. A high margin level means you have plenty of room. A falling margin level means losses are eating into the buffer.
What a margin call is
A margin call is a warning from the broker that your margin level has fallen below a set threshold. It is not always a forced closure, but it signals that you should reduce exposure or add funds. Brokers set their own thresholds, and some do not issue margin calls at all, so check your terms.
What a stop-out is
A stop-out is when the broker closes positions automatically because the margin level has fallen to a lower threshold. Brokers usually close the largest losing position first, or all positions, and the closure happens at the current market price. That price may be far worse than the price you expected.
Worked example: your balance is $2,000 and you hold a losing position with a floating loss of $1,500. Equity is $500. If used margin is $1,000, the margin level is 50%. If the broker’s stop-out level is 50%, the position is closed at the current price, and the loss is realised at that moment, even if the market later recovers.
A worked example: how a position builds toward a margin call
You have a $5,000 account and open two standard EUR/USD lots at 1:100 leverage. Each lot requires about $1,085 of margin, so used margin is about $2,170. Free margin is about $2,830, and the margin level is about 230%.
The market moves 150 pips against you. Each standard lot loses $1,500, so the total floating loss is $3,000. Equity falls to $2,000. The margin level is now $2,000 ÷ $2,170 = about 92%. If the broker’s margin call is at 100%, you are already in margin-call territory. Had the broker set a stop-out at 50%, you would still be above it, but with very little room for further moves.
The lesson is that the margin system does not protect you from a large loss. It only closes positions when the buffer has been used up. Your own stop-loss must do the protecting.
Why margin calls happen
- Oversized positions. Too many lots relative to the balance.
- High leverage with no stop. A small percentage move wipes out a large share of equity.
- Holding through volatility. News releases and weekend gaps can move price beyond a stop-loss.
- Adding to losing positions. Each addition increases used margin while the trade is already losing.
How to stay well above the margin threshold
- Keep used margin low, ideally well under half of equity.
- Use a stop-loss on every trade, placed where your idea is invalid.
- Size positions from the money you can lose, not from the margin available.
- Monitor the margin level during volatile sessions and before major news.
- Reduce exposure when the margin level starts to fall, rather than waiting for a call.
Hedging does not remove margin
Opening an opposite position on the same pair may not free up margin, depending on the broker. Some brokers net positions and reduce the margin required, while others require margin on both sides. Check how your broker treats hedged positions before you rely on them.
Practice exercise
On a demo account, open two positions with a total used margin of about 40% of equity. Move the price against you by 100 pips and calculate your margin level at each step. Note the point at which you would be concerned, and where your stop-loss would have closed the trade first.
Summary
Margin is a deposit, not a cost. Margin calls and stop-outs protect the broker, not you. Keep used margin low, use stop-losses, and reduce exposure before the broker has to act.
Margin in a losing trade: a step-by-step walk-through
It helps to see how the numbers move, one step at a time. Take a $3,000 account, trading EUR/USD at 1:50 leverage, with one standard lot open at 1.0850. A standard lot has a position value of $108,500, so the margin required at 1:50 is about $2,170.
Step 1: the trade opens. Used margin is $2,170, equity is $3,000, free margin is $830, and the margin level is about 138%.
Step 2: a 50-pip move against you. The floating loss is $500. Equity is $2,500. Margin level is about 115%. Free margin is $330. Nothing has been closed, but the buffer is shrinking.
Step 3: a 100-pip move against you. The floating loss is $1,000. Equity is $2,000. Margin level is about 92%. Free margin is negative in practical terms, because equity is now below used margin. Most brokers would issue a margin call at this point.
Step 4: the broker closes the position. If the stop-out level is 50%, the position is closed when equity falls to about $1,085. That is a 150-pip move, with a loss of $1,915. The position is closed at the market price, which may be worse than 150 pips away if the market is moving quickly.
The point is that the margin system only reacts after a large part of the account is gone. Your stop-loss must act long before these stages, which is why it is the first protection to set.
Why the same trade can behave differently on different leverage
Leverage does not change the price move. It changes how fast your margin level falls. The same 100-pip move that leaves a 1:10 account comfortable can trigger a margin call on a 1:100 account. For this reason, two traders with identical trades and identical balances can face very different outcomes depending on the leverage each one uses.
Worked example: a $3,000 account with one standard lot. At 1:10, used margin is $10,850, which is more than the account, so the trade cannot be opened. At 1:30, used margin is $3,617, again too large. At 1:50, the trade fits, but the margin level is thin. At 1:100, used margin is $1,085, and the margin level after a 100-pip move is much higher than at 1:50, although the dollar loss is the same. Leverage changes your margin buffer, not your loss on the move.
Margin across multiple positions
Margin is calculated across all open positions on the account. Adding a second position increases used margin, and each new position reduces the room for losses on the others. Traders who open several trades in different pairs often underestimate how fast the margin level can fall, because each trade looks small on its own.
Worked example: you hold three mini lots of EUR/USD, GBP/USD and AUD/USD on a $5,000 account at 1:50. Each mini lot needs about $217 of margin at 1:50, so used margin is about $650. A broad move against all three, of 60 pips in each pair, costs about $180 in total. That is a manageable loss, but it shows how quickly a correlated group of trades can reduce equity.
Correlated trades and hidden exposure
Some currency pairs move together. EUR/USD and GBP/USD often rise and fall in the same direction because both are driven by dollar strength. Holding both in the same direction doubles the exposure without doubling the apparent risk. When you calculate margin and risk, treat correlated positions as one larger position.
What to do as the margin level falls
- Do not add new positions to a losing account.
- Check whether your stop-loss on each trade still reflects your original plan.
- Reduce the largest position first, not the one that feels most comfortable.
- Accept a smaller loss now rather than waiting for a stop-out to close everything at a worse price.
- Review the trade afterwards and record what the margin level was at each step.
Broker-specific rules to check
Margin rules differ between brokers and between account types. Check the following before opening an account: the margin level at which a margin call is issued, the stop-out level, whether the broker closes the largest position first or all positions, how hedged positions are margined, and whether negative balance protection applies if the account is closed below zero.
Under EU and UK rules, retail CFD providers must give negative balance protection, which limits a retail client’s losses to the funds in the account. Under ESMA rules, the close-out is standardised at 50% of the minimum required margin for EU retail CFD accounts. Confirm this on the regulator’s register and in the client agreement, not only on the broker’s marketing page.
Margin and swaps on held positions
Holding a position overnight may also add swap charges, which reduce equity further. On a position that is losing, swaps add to the pressure on the margin level. Include swap costs in your planning for any trade you intend to hold for more than a day.
Practice exercise: build a margin plan
On a demo account, write a one-page margin plan before you open any trade. Include the balance, the leverage you will use, the maximum used margin you will allow (for example, 30% of equity), the stop-loss distance and the lot size. Open the trade and record the margin level at each 25-pip step in either direction. Compare what happened with your plan.
Common questions
Is a margin call the same as a loss? No. A margin call is a warning. A loss only becomes realised when you close the position, or when the broker closes it for you.
Can I withdraw money when the margin level is low? Brokers often limit withdrawals while positions are open, because equity is needed to support margin. Check the terms.
Does a stop-loss prevent a margin call? It can, because it closes the loss before equity falls far enough to trigger one. It does not guarantee this in a gap.
Summary
Margin is what the broker holds against your open positions. As losses grow, equity falls, and the margin level falls with it. Margin calls and stop-outs happen late in the process, so your own stop-loss and position size must do the real protecting. Keep used margin low, watch correlated trades, and know your broker’s exact thresholds before you trade.
Sources and further reading
We checked the regulatory claims in this article against the following primary sources. Rules change, so check the current version before you rely on any figure.
ESMA press release, 27 March 2018 (leverage caps, 50% close-out and negative balance protection for EU retail CFD clients, and the 74–89% loss statistic).
FCA statement on ESMA measures (the UK position, including the 50% close-out and negative balance protection).
FCA policy statement PS19/18 (permanent UK restrictions on retail CFDs, confirmed in 2019).
ASIC news release, 11 November 2020 (Australian leverage caps for retail CFDs from 29 March 2021, standardised margin close-out and negative balance protection). Check the current ASIC position before you rely on it.
Pip and lot definitions are market conventions rather than regulatory rules. Check the contract specification for each instrument with your broker.
Risk warning: trading forex and CFDs involves a high risk of loss, and most retail accounts lose money. This article is general education, not financial advice. Read our disclaimer.