What is margin in forex trading?
Written by an ex-institutional trader. What margin is, the difference between used and free margin, how the margin level works, and what a margin call and a stop-out actually mean for your account.
Direct answer
Margin in forex is the deposit you must put up to open and hold a leveraged position. It is not a fee; it is collateral the broker sets aside while the trade is open. The required margin is the position size divided by your leverage. At 30:1, a AUD 30,000 position needs about AUD 1,000 of margin. When you close the position, that margin is released back to your balance.
Beyond the required margin, three terms matter: used margin (the total locked across open positions), free margin (what is left to open new trades or absorb losses), and the margin level (equity divided by used margin, as a percentage). If losses push the margin level too low, the broker issues a margin call and, if it falls further, automatically closes positions in a stop-out to protect against further loss. Understanding these is how you avoid being force-closed at the worst possible moment.
What margin is
Margin is the deposit you put up to open a leveraged position. It is one of the most misunderstood terms in trading because it sounds like a cost, but it is not. Margin is collateral. The broker sets it aside from your balance while a position is open, as security against the leverage it is extending you, and returns it to your balance in full when you close the position.
So if you open a position that requires AUD 1,000 of margin, that AUD 1,000 is not spent. It is locked, unavailable for other trades, until you close out, at which point it comes back. The only money that actually leaves your account is the spread, any commission, and any loss on the trade itself. Margin and leverage are two views of the same thing, which the next sections make concrete.
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Calculating required margin
The required margin for a position is the position size divided by your leverage. Equivalently, it is the position size multiplied by the margin percentage, where the margin percentage is one divided by the leverage.
A worked example on a EUR/USD position worth AUD 30,000:
- At 30:1 leverage, required margin is AUD 30,000 / 30 = AUD 1,000.
- At 20:1, it is AUD 30,000 / 20 = AUD 1,500.
- At 10:1, it is AUD 30,000 / 10 = AUD 3,000.
The higher the leverage, the smaller the margin needed to hold the same position. For an Australian account trading USD-quoted pairs there is also a currency conversion in the maths, since the position is denominated in USD but your margin is in AUD. The margin calculator handles all of this and returns the exact figure in Australian dollars.
Used margin and free margin
Once you hold positions, two running figures matter.
Used margin is the total margin locked across all your open positions. Open three positions and the used margin is the sum of their three margin requirements.
Free margin is your equity minus your used margin. Equity is your balance plus or minus the unrealised profit or loss on open positions. Free margin is the money still available to open new positions or, crucially, to absorb losses on the ones you already hold. When a position moves against you, your equity falls, and so does your free margin. When free margin runs out, you are at the edge of a margin call.
The practical point is that free margin is your buffer. Opening positions so large that little free margin remains leaves no room for normal adverse moves, which is how traders get force-closed on a wobble that would otherwise have recovered.
Margin level, calls and stop-outs
The margin level ties it together. It is your equity divided by your used margin, expressed as a percentage:
- A high margin level (say 1,000 percent) means plenty of buffer; your equity is far above your used margin.
- A falling margin level means losses are eroding the buffer.
- At a broker-set threshold, often around 100 percent, you receive a margin call, a warning to add funds or reduce positions.
- At a lower threshold, often around 50 percent, the broker triggers a stop-out, automatically closing positions, starting with the biggest loser, to stop your equity going negative.
A stop-out is the market closing your losing trades for you, at the worst possible moment, with no say in the matter. ASIC's negative balance protection means a retail account cannot go below zero, but a stop-out can still wipe out most of your balance. The exact margin-call and stop-out levels vary by broker, so check yours.
How to avoid a margin call
Avoiding margin trouble is mostly about not over-committing your account in the first place.
- Size positions to your risk, not to your available margin. Decide a small fixed percentage of the account to risk per trade and size to it with the position size calculator, rather than opening the largest position the margin allows.
- Keep a healthy free-margin buffer. Leaving most of your balance as free margin means normal adverse moves do not threaten the position.
- Use stop losses. A stop closes a losing trade at a planned level long before the account reaches a stop-out.
- Watch correlated positions. Several positions that move together can draw down free margin all at once.
Margin is not something to fear, but it is something to respect. Used sensibly it is just the collateral behind your leverage; used carelessly it is the mechanism that force-closes accounts. The companion basics, what is a pip, what is the spread and what is leverage, complete the cost-and-risk foundation, and the best forex brokers in Australia ranking covers brokers with sensible margin terms.
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Examples use indicative figures for illustration and are not financial advice. Last reviewed: 2026-06-01.
Frequently asked questions
What is margin in forex?
Margin is the deposit you put up to open and hold a leveraged position. It is collateral, not a fee: the broker sets it aside while the trade is open and returns it to your balance when you close the position. The amount required is the position size divided by your leverage, so a AUD 30,000 position at 30:1 leverage requires about AUD 1,000 of margin.
What is the difference between used margin and free margin?
Used margin is the total amount locked up as collateral across all your open positions. Free margin is your equity minus used margin, the money still available to open new positions or to absorb losses on existing ones. As a trade moves in your favour, free margin rises; as it moves against you, free margin falls. Running out of free margin is what triggers a margin call.
What is a margin call in forex?
A margin call is a warning from your broker that your account equity has fallen too close to your used margin, meaning losses on open positions have eroded your buffer. It is a signal to add funds or close positions. If the account keeps falling and reaches the broker's stop-out level, the broker automatically closes positions, starting with the largest losing one, to stop your equity going negative. The exact margin-call and stop-out levels vary by broker.
What is a stop-out level?
The stop-out level is the margin level at which a broker automatically closes your positions to prevent further loss, often set around 50 percent margin level. If your equity falls so that the margin level hits that threshold, the broker liquidates positions without waiting for you to act. It is a protective mechanism, but being stopped out means your losing trades are closed at the worst time, which is why traders manage margin well before it gets there.
How do I calculate margin?
Divide the position value by your leverage, or equivalently multiply it by the margin percentage. A AUD 100,000 position at 30:1 leverage requires AUD 100,000 divided by 30, about AUD 3,333. At 20:1 it would be AUD 5,000, and at 10:1, AUD 10,000. The margin calculator does this in AUD for any pair, position size and leverage, including the currency conversion for an AUD account trading USD-quoted pairs.
Is margin the same as leverage?
They are linked but not identical. Leverage is the ratio of position size to deposit; margin is the deposit. Higher leverage means a lower margin requirement and vice versa, connected by the rule that margin equals one divided by leverage. At 30:1 the margin is about 3.3 percent of position value. So when a broker advertises 30:1 leverage, it is the same as saying a 3.3 percent margin requirement.
