Margin as reserved collateral
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 1:100 leverage, margin equals 1% of the position's notional value (1 ÷ 100). At 1:200, margin is 0.5%. At 1:500, margin is 0.2%. 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 requirements across instruments
Margin scales with both position size and the leverage applied to the position. On a USD account at 1:100 across each instrument:
EUR/USD, 1 standard Lot size at 1.0850, leverage 1:100: position value $108,500, margin $108,500 ÷ 100 = $1,085.
GBP/USD, 1 standard lot at 1.2400, leverage 1:100: position value $124,000, margin $124,000 ÷ 100 = $1,240.
XAU/USD, 1 standard lot of 100 troy ounces at 4,500, leverage 1:100: position value $450,000, margin $450,000 ÷ 100 = $4,500.
At a fixed leverage, margin scales directly with the position's notional value — gold reserves more than an FX major on the same lot because the notional is larger. The maximum leverage a broker will apply also varies by instrument and by broker: major FX is typically offered at the highest ratios, while gold, commodities, indices, and cryptocurrencies are usually offered lower. The exact ceilings are set in each broker's terms.
Free margin and what it absorbs
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 $1,085 in margin against one EUR/USD position has free margin of $8,915. That free margin can absorb $8,915 in adverse P&L — about 892 pips of adverse movement on the open position — before equity falls to the level of margin held and the broker's margin call warning fires.
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 $8,915 of free margin and runs into 200 pips of adverse movement has free margin of $6,915, with the same margin held.
Margin call and stop-out mechanics
Two broker-defined levels matter as equity falls. The margin call, commonly around 100% of margin held, is the broker's warning — equity has dropped to the margin reserved and the broker flags the account, often blocking new positions, but closes nothing. The stop-out is lower, commonly around 50% of margin held though it varies by broker: at that level the broker begins closing open positions automatically to lift the margin level above the threshold, largest losing position first.
The stop-out closes at market price, not at a chosen level. In fast markets the close price may be substantially worse than the trigger level. The exact percentages and the order in which positions close are published in the broker's terms.
A trader running multiple correlated positions — long EUR/USD, long GBP/USD, long AUD/USD — carries 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 stop-out closing one of them does not cancel the correlated exposure on the other two.
Margin and pip value: the position-sizing connection
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 1:100 leverage can open up to about 9.2 standard lots of EUR/USD before all equity is tied up as margin (9.2 × $1,085 = $9,982). 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 9.2.
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.