For Business

Market Basics

What Is Margin

Margin is the part of your balance a broker locks away while a position is open. This paper shows you what it is and is not, what one lot locks at four common ratios, how used margin and free margin work, how the four numbers on the account screen move through one real trade and through a losing day, and where the platform shows the figure before you confirm a trade.

Difficulty
Beginner
Reading time
7 min
Pages
8
Reviewed by
Saman Rahbar

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A slice in the safe

Margin is the part of your balance that a broker sets aside while a position is open. It is not a fee and it is not spent; it comes straight back when you close. But while the trade is running, that money cannot be used for anything else. The ratio is your leverage: how many dollars of currency you may control for each dollar you put in. Buy one standard lot of the euro against the dollar at 1.16261 and you are holding a position worth $116,261. At a ratio of one to a hundred, the broker sets aside a hundredth of that — $1,162.61 — and leaves the rest of your balance alone.

The same position at a different ratio locks a different slice. At one to thirty, one lot locks $3,875 of a five-thousand-dollar balance. At one to five hundred it locks $232. The position is identical in every row, and so is everything the market can do to it; only the slice in the safe changes.

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