Margin is the most misunderstood number on a trading platform. It is not a fee, not a cost, and not money you have spent. It is collateral — locked while a trade is open, returned the moment it closes. Misunderstanding this is how traders end up with positions closed automatically at the worst possible moment.
This lesson covers what margin actually is, the four figures your platform displays, and the specific mechanics of a margin call and a stop out.
Margin is a deposit, not a payment
When you open a leveraged position, your broker requires you to set aside a portion of your balance as security. That is margin.
Position: 1 standard lot EUR/USD
Position value: $108,500
Account leverage: 1:100
Margin required: $108,500 ÷ 100 = $1,085
That $1,085 is not gone. It is reserved. Close the position and it returns to your available balance immediately, adjusted for whatever profit or loss the trade produced.
The formula is simply position value divided by leverage. Higher leverage means less margin required for the same position — which is exactly why high leverage lets small accounts open large positions.
The four numbers on your platform
MT4 and MT5 display four related figures. Most beginners look only at the first and are surprised by the others.
Balance
Your account total from closed trades only. It does not move while positions are open, no matter how much they are gaining or losing.
Equity
Balance plus or minus the floating profit and loss of open positions. This is your account’s real-time value — what you would have if you closed everything right now.
Balance: $2,000
Open position P/L: −$150
Equity: $1,850
Equity is the number that actually matters. Balance is history; equity is now.
Margin
The total currently locked as collateral across all open positions. Sometimes labelled “used margin.”
Free margin
Equity minus margin — what remains available to open new positions or absorb further losses on existing ones.
Equity: $1,850
Used margin: $500
Free margin: $1,350
Free margin is your buffer. As open positions lose value, equity falls, and free margin falls with it. Watching this number is far more informative than watching balance.
Margin level — the number that triggers everything
Margin level is expressed as a percentage, and it is what your broker monitors to decide whether to intervene.
Margin level = (Equity ÷ Used margin) × 100
Equity: $1,850
Used margin: $500
Margin level: 370%
A high percentage means comfortable headroom. As losses mount, equity falls while used margin stays fixed, so the percentage drops.
Two thresholds matter, and both are set by your broker:
The margin call level, commonly 100%. At this point equity equals used margin — you have no free margin left. Most brokers send a warning and block new positions.
The stop out level, commonly 50%. Here the broker begins closing your positions automatically, starting with the largest loser, until margin level recovers above the threshold.
A stop out is not a punishment and it is not negotiable. It is an automated process protecting the broker from your account going negative. It happens without warning beyond the margin call, at whatever price the market is trading, and you have no ability to stop it once triggered. The only defence is never approaching it.
A worked example of the whole sequence
Walking through this once makes the mechanics concrete.
Account: $1,000
Leverage: 1:100
Position: 0.50 lots EUR/USD @ 1.0850
Position value: $54,250
Margin required: $542.50
Free margin: $457.50
Margin level: 184%
The trade goes against them. Each pip costs $5 at this position size.
| Move against | Floating P/L | Equity | Margin level | Status |
|---|---|---|---|---|
| 20 pips | −$100 | $900 | 166% | Fine |
| 50 pips | −$250 | $750 | 138% | Tightening |
| 91 pips | −$457 | $543 | 100% | Margin call |
| 145 pips | −$729 | $271 | 50% | Stop out |
A 145 pip move — entirely ordinary for EUR/USD over two or three sessions — wipes out 73% of this account through forced liquidation.
The position size was the problem from the first moment. At 0.05 lots instead of 0.50, the same 145 pip move would have cost $72.50 and the margin level would never have approached the stop out.
How to never see a margin call
The margin call is a symptom. The disease is position sizing, and treating the symptom does not help.
Size positions using the Lesson 5 method. Risking 1% per trade with a properly placed stop loss makes a margin call effectively impossible on a single position. The stop closes the trade long before margin becomes relevant.
Always use a stop loss. The stop is what caps your loss at a chosen level. Without one, the only thing eventually closing a losing trade is the broker’s stop out — at a far worse price.
Watch free margin, not balance. If free margin is falling toward zero, you are overexposed. Reduce positions before the broker reduces them for you.
Count correlated positions together. Three dollar-related trades are one position from a margin perspective. They will all move against you simultaneously.
Keep margin level comfortably above 300%. This is not a formal rule, but as a working habit it keeps you far from any threshold that matters. The Drawdown calculator is also worth running once — seeing how much a losing streak costs at your chosen risk level tends to concentrate the mind.
In five years of running a signals community, I cannot recall a single trader who received a margin call while risking 1% per trade with stops in place. Every margin call I have seen came from an oversized position, a missing stop loss, or a trader adding to a loser hoping it would turn. The mechanism is always the same three causes.
Adding to losing positions
This deserves separate mention because it is how most accounts actually die.
A position moves against you. Rather than accepting the loss, you add a second position at the better price, reasoning that when price recovers you will break even faster.
The arithmetic is seductive and the psychology is worse. Each addition increases used margin while equity is already falling — so margin level drops from both directions simultaneously. Traders using this approach often report it working repeatedly, right up until the single occasion it does not, which removes everything the previous occasions earned.
If a trade is losing, the correct response is the stop loss you set when you entered. That decision was made calmly, before money was on the line. The decision to add is being made now, under pressure, which is precisely when judgement is worst.
What to do next
You now understand the complete mechanical framework — pips, lots, leverage, spread and margin. These five concepts describe everything that happens to your money when a trade is open.
Lesson 9 moves from mechanics to execution: the different order types available, when each is appropriate, and how to use stop loss and take profit orders to remove emotion from your exits.
Frequently asked questions
What is the difference between balance and equity?
Balance reflects only closed trades and does not change while positions are open. Equity is balance adjusted for the floating profit or loss of open positions — your account’s real-time value. Brokers use equity, not balance, to calculate margin level.
What happens during a margin call?
At the margin call level, usually 100%, your equity has fallen to equal your used margin. Most brokers send a notification and prevent new positions from being opened. Nothing is closed yet — it is a warning that you are approaching the stop out level.
Can I stop a stop out once it starts?
No. Stop outs are automated and execute immediately at market price. The only way to prevent one is to act beforehand, by closing positions yourself or adding funds while margin level is still above the threshold.
How much margin do I need for one standard lot?
Position value divided by leverage. One standard lot of EUR/USD at 1.0850 is $108,500 in value, so at 1:100 leverage it requires $1,085 margin, and at 1:500 it requires $217. Our Margin calculator works this out for any pair and leverage setting. The position size and risk remain identical either way — only the collateral changes.
Does margin cost me anything?
No. Margin is collateral, not a charge. It is reserved while the position is open and released when it closes. Your trading costs are spread, commission and swap — margin is not among them.
Why is my free margin negative?
Because floating losses have pushed equity below your used margin. This means you are past the margin call level and approaching a stop out. The immediate action is to close positions to reduce used margin — waiting for recovery at this point is gambling with a forced deadline.