What is margin in trading?

Margin is the capital the broker reserves when a leveraged position opens. It is not a fee. It is not an interest charge. It is held as collateral against the position and released when the position closes.

The relationship to leverage is mechanical. At 1:30 leverage, margin equals 3.33% of the position's notional value (1 ÷ 30). At 1:100, margin is 1%. At 1:200, margin is 0.5%. Leverage and margin are inverse: higher leverage means less margin held per unit of position size.

Margin returns to free capital when the position closes. Whether the trade was profitable or loss-making does not affect the margin return — only the realised P&L hits the account; the margin reservation is unwound.

Margin scales with both position size and the leverage available for that instrument. On a USD account at the relevant ESMA caps:

EUR/USD, 1 standard Lot size at 1.0850, leverage 1:30: position value $108,500, margin $108,500 ÷ 30 = $3,617.

GBP/USD, 1 standard lot at 1.2400, leverage 1:30: position value $124,000, margin $124,000 ÷ 30 = $4,133.

XAU/USD, 1 standard lot of 100 troy ounces at 2,318.45, leverage 1:20 (gold cap): position value $231,845, margin $231,845 ÷ 20 = $11,592.

Different leverage caps apply to different instrument categories under ESMA rules: 1:30 for major FX, 1:20 for non-major FX and gold, 1:10 for non-gold commodities and major indices, 1:5 for individual equities, 1:2 for cryptocurrencies. The same nominal position size on a non-gold commodity carries triple the margin of an FX major.

Free margin is the difference between total account equity and the sum of margin held against all open positions. It is the capital available to open new positions or absorb adverse movement on existing ones.

Worked example: a $10,000 account holding $3,617 in margin against one EUR/USD position has free margin of $6,383. That free margin can absorb $6,383 in adverse P&L — about 638 pips of adverse movement on the open position — before equity falls to the level of margin held and the broker's margin call mechanism activates.

Unrealised P&L on open positions is included in equity calculations. Free margin shrinks as adverse movement develops, even before the position closes. A position that opens with $6,383 of free margin and runs into 200 pips of adverse movement has free margin of $4,383, with the same margin held.

When equity falls to a broker-defined percentage of total margin held — typically 50% on retail accounts — the broker begins closing open positions to lift equity above the threshold. The largest losing position is usually closed first.

Margin calls execute at market price, not at a chosen level. In fast markets the close price may be substantially worse than the trigger level. The exact percentage and the order in which positions close are published in the broker's terms.

A trader who runs multiple correlated positions — long EUR/USD, long GBP/USD, long AUD/USD — should account for combined margin exposure, not just per-position margin. The three positions may correlate during USD-strength events; the margin is held across all three, and a margin call closing one of them does not cancel the correlated exposure on the other two.

Margin determines what the account can support; pip value determines what each unit of price movement costs. They are different but linked.

A $10,000 account on 1:30 leverage can open up to about 2.7 standard lots of EUR/USD before all equity is tied up as margin (2.7 × $3,617 = $9,766). That is the upper bound from a margin perspective. From a risk-per-trade perspective, the upper bound is far smaller — at 1% risk per trade with a 50-pip stop, the account supports 0.20 standard lots, not 2.7.

Position sizing is constrained by whichever bound is tighter. For a well-funded account using sensible risk per trade, that is almost always the risk bound, not the margin bound. Margin only becomes the active constraint when the account is overexposed across multiple positions.