Margin is the deposit a position requires

Margin is a deposit. A firm sets aside part of the cash in an account so that a position larger than that cash can be carried. The exchange rate on the ticket is still the market price the firm quoted, bid or ask, with the spread included in the usual way. You do not receive the currency at a reduced price because you posted margin. You posted collateral, and the firm extended exposure against it. The word sounds like a shop's margin, a difference between wholesale and retail, and that echo causes a lasting confusion. In a currency account the margin is not the shop's profit and it is not a discount. It is the amount of your balance that is reserved, and therefore not free to withdraw, while the position is open. When the position closes, the reservation is released, and the profit or loss is already in the balance. The deposit did a job. It did not buy the pair more cheaply.

Leverage is the ratio that connects the reserved cash to the notional size of the position. If a contract requires margin of about one thirtieth of the notional, people call the leverage thirty to one. A notional of 30,000 in account-currency terms would then reserve about 1,000. The figures are an illustration of the ratio, not a rate card and not a suggestion of what to open. Firms publish the ratio by symbol, by account type, and sometimes by the size of the position, with higher tiers demanding a higher margin percentage. A regulator may cap the ratio for retail clients in a given country. The cap is a legal constraint on the firm. It is not a judgment that the largest legal position is suitable for any particular deposit. Two accounts with the same leverage figure can still mean different things if one computes margin on the mid price and another on the ask, or if one offers reduced margin on hedged positions. Read the formula in the contract, then check it against a single open position whose notional you can compute from the lot size. Used margin on the platform should resemble that formula. If it does not, you have not yet found the formula that is actually running.

The account window usually shows four related numbers, and they are not synonyms. Balance is the cash result of closed activity, plus deposits and minus withdrawals, and it does not include the floating result of positions still open. Equity is the balance plus that floating result, including swap that has already attached. Used margin is the portion reserved for open positions. Free margin is what the firm says is left to support new exposure or to absorb further floating loss, often equity minus used margin. A floating loss reduces equity and therefore reduces free margin, even though the balance has not moved yet. A person who looks only at the balance while a position is open is looking at yesterday's closed history. The number that is being consumed in real time is equity. When equity falls toward the used margin, the account is running out of spare collateral. That is a mechanical description of the screen. It is not a cue to add money, and it is not a cue to open something else. It is the screen telling the truth about what is left.

Firms set levels at which they warn and levels at which they close positions without waiting for a new instruction. A margin call, on many platforms, is a message or a state that appears when equity as a percentage of used margin falls through a published figure. A stop-out is the firm's right, written in the contract, to close some or all positions when a lower figure is reached. The percentages differ. One firm might warn at 100 percent and close at 50 percent. Another might use different numbers, or close the largest position first, or close everything. The order of closing matters, because the position the firm chooses may not be the one you would have chosen, and a close in a fast market occurs at the price then available, not at the price that would have produced exactly the published percentage. A gap through the level, especially from one session's close to the next session's open, can carry equity past the stop-out and, on accounts without a negative-balance rule, past zero. Some jurisdictions require firms to absorb a negative retail balance. Some account types and some countries do not. The statement is where you learn which rule you were under, after the fact, by seeing whether the balance stopped at zero or kept going. The time to read the rule is before a position is large enough to test it.

It helps to walk a single invented example in the units of the account, with every number labeled as arithmetic rather than as a quote you might deal. Suppose the account currency is the quote currency, the contract size is 100,000 units of the base, and the position is 0.10 volume, so 10,000 units. Suppose the fill is 1.2000, again a round figure chosen for the multiplication. The notional in quote currency is 12,000. At a margin rate of 5 percent, used margin is about 600. A price move of 0.0060 against the position is 0.0060 times 10,000, which is 60 units of quote currency, a tenth of the reserved margin. A move of 0.0600 against it is 600, the whole reservation. A move of that size is not exotic on a volatile day or across a weekend gap, and the floating loss comes out of equity immediately. If 600 was most of the account, the deposit is gone or the stop-out has fired before the move finishes. Nothing in this paragraph says that 0.10 is a proper size, or that 5 percent is a rate to seek. It says that margin is a small pile of collateral standing in front of a larger notional, and that the price is applied to the notional. The deposit is the pile. The discount does not exist.

Free margin can rise for reasons that feel like a gain and are only a change in reservation. Closing a position releases used margin. If the position closed at a loss, equity falls and used margin falls with it, and the free-margin number can look calmer even though the balance is smaller. Adding a hedge, on a platform that margins the net exposure, can reduce used margin while leaving two tickets open that both generate commission and possibly swap. A credit or a bonus posted by the firm can increase the figure that margin is computed against, until the firm removes the credit under the terms of the promotion. A balance that includes a removable credit is not the same object as cash you deposited. When you read the account window, separate "money I sent" from "money the firm is temporarily counting." The statement's deposit column and the statement's credit column are the place where that separation becomes visible. If you only photograph the equity number, you will not know, later, how much of it was yours.

Withdrawal rules follow the same collateral logic. A firm will generally refuse a withdrawal of used margin, and it may refuse a withdrawal of free margin while positions are open if its own formula is more conservative than the number on the screen. A deposit that arrived by card may be returnable only to that card, up to the deposited amount, with profits paid by a slower route. Those are treasury rules. They do not change the price of the pair, and they do not change the fact that open losses reduce what can be taken out. Before relying on a deposit as money you might need for a bill, read whether an open position locks it. Margin's job is to stay put while the position exists. Treating the whole balance as spendable cash during that time is a misunderstanding of the reservation, and the misunderstanding becomes obvious only when a withdrawal is declined or a stop-out has already reduced the balance.

There is a temptation to describe leverage as efficiency, as if a smaller deposit for the same position were a bargain you had negotiated. The position is not cheaper. The same price move produces the same gain or loss in account currency at a given size, whether the margin rate is 2 percent or 20 percent. What changes is how little cushion sits under that gain or loss, and how quickly a firm is entitled to close the position or to ask for more cash. A higher leverage figure means a thinner cushion for the same notional, or a larger notional for the same cushion. It is a description of collateral, not a quality of the trade. Anyone who raises leverage so that a familiar lot size "fits" in a smaller account has not reduced the risk of that lot size. They have reduced the cash standing behind it. The statement will record the consequence as a larger percentage change in equity for the same pip movement. The quote will look ordinary. The account will not.

Read the margin line the way you would read a deposit receipt. Note the rate, the notional it was applied to, the used margin that resulted, the equity at the time, and the stop-out rule in the contract. If those five items are in the journal, a later drawdown can be explained without inventing a story about the price "hunting" the account. The price moved. The notional translated the move into money. The margin was the money that had been set where the translation could reach it. That explanation is complete. It does not require a view on the next move, and it does not require a belief that a different leverage setting would have turned the same size into a safe size. Only a smaller notional, relative to cash that can be lost, changes that relationship.

This site does not hold client money, set margin rates, or issue margin calls. It is not a broker. Margin, at a firm that does those things, is a deposit posted against a price that can move farther than the deposit. Currency prices can wipe that deposit. They can do it by a steady drift or by a gap, and the contract's stop-out is a procedure for the firm's benefit as well as a limit you might have hoped would protect you. Understanding the word is the difference between expecting a discount and recognizing collateral.

This page is general information. It is not a policy, a diagnosis, a school place, or a trade.