Margin Jargon Cheat Sheet

You must understand that margin in forex controls how much you can trade, how much risk you carry, and how your broker protects the account. But there are various jargons associated with it which you need to follow, track, and calculate with precision.

Every margin term connects to how your account performs in real time. Equity, free margin, margin level—each one tells you something about your position, strength and exposure.

So let’s grasp it all here through our Margin Jargon Cheat Sheet. Use this guide to learn what each term means, how it works, and how to stay ahead of platform limits.

Core Concepts

Core margin terms define the base structure of every trade. Each concept sets the rules for entry size, required funds, and account leverage.

Margin

In forex trading, margin refers to the amount of money your broker allocates from your account when you open a position. It works as collateral, which makes sure your trade has enough backing to cover potential losses.

For example, if you want to open a $10,000 position and your broker sets a 2% margin requirement, then $200 will be allocated from your account. That amount stays locked while the position remains open. Once the trade closes, the margin returns to your available funds.

Margin is based on the full size of the position, also called the notional value. Each trade uses its own margin depending on size, leverage, and broker settings.

You must know that your forex margin comes from your own capital. It allows you to control a larger trade using a smaller amount from your account. A lower margin percentage means greater market exposure. For example:

• A 1% margin gives you 100:1 leverage
• A 2% margin gives you 50:1 leverage
• A 5% margin gives you 20:1 leverage

Leverage

Leverage in forex shows how much larger your trade size can be compared to your account balance. It gives you the ability to control a full position while using only a fraction of its value.

For example, if your broker offers 50:1 leverage, you can open a $50,000 position using just $1,000 from your account. That $1,000 becomes the margin, and the leverage multiplies your market exposure.

Leverage always works as a ratio. Some common examples include:

• 100:1 means you control $100 for every $1 in your account
• 50:1 means you control $50 for every $1 in your account
• 20:1 means you control $20 for every $1 in your account

Higher leverage increases both potential profit and potential loss. Even a small price movement can have a big effect on your account value. Because of this, traders need to use leverage with a clear risk plan and strong discipline.

Your broker decides the maximum leverage based on your account type, trading platform, and the region’s regulations. In many cases, major currency pairs allow higher leverage than exotic pairs.

Leverage and margin always go hand in hand. When the margin requirement is lower, the leverage is higher. So, you must grasp their connection to choose the right position size and avoid overexposure.

Margin Requirement

Margin requirement shows how much of your own money you need to commit when opening a trade. It appears as a percentage of the full position size, also called the notional value.

If your broker sets a margin requirement of 2%, that means you must allocate 2% of the trade’s value from your account. The rest is handled through leverage. For example:

• A $10,000 trade with a 2% margin requirement needs $200 in margin
• A $50,000 trade with a 1% margin requirement needs $500 in margin

Margin requirement helps define how much leverage you receive. The relationship works like this:

• 1% margin requirement = 100:1 leverage
• 2% margin requirement = 50:1 leverage
• 5% margin requirement = 20:1 leverage

Your broker calculates margin requirements for each trade based on the asset type, account currency, and platform settings. It can vary between instruments. Major forex pairs often come with lower margin requirements than volatile or exotic pairs.

Required Margin

Required margin is the actual amount your broker locks from your account when you open a trade. This amount depends on the trade size and the margin requirement set for that position.

It works as the upfront cost of entering the market. Once the trade is active, the required margin stays reserved. You cannot use it for other trades until the position closes.

For example, if you open a $10,000 trade and the margin requirement is 2%, then the required margin is $200. That $200 remains fixed until you exit the trade. When the trade closes, the margin unlocks and returns to your free margin.

To calculate required margin:

• If your account and trade use the same base currency:
  Required Margin = Notional Value × Margin Requirement
• If the trade uses a different base currency:
  Required Margin = Notional Value × Margin Requirement × Exchange Rate
  

Every trade has its own required margin. Larger trades need more margin. Tighter margin requirements reduce the amount you need to commit, which increases your leverage.

Account Metrics

Margin jargons associated with account metric help measure real-time account status. Each value reflects available equity, locked margin, and unrealized position strength.

Balance

Balance refers to the total cash in your trading account. It reflects your funds after all closed trades and any deposits or withdrawals.

If you have no open positions, your balance equals your equity. If you do have open trades, your balance remains unchanged until those positions close. Any profits or losses from open trades do not affect the balance until they are realized.

For example, if your account starts with $1,000 and you open a trade that gains $200, your balance still shows $1,000. Once you close the trade, the $200 profit adds to your balance, updating it to $1,200.

Your balance plays a key role in determining equity and free margin. It remains a fixed reference point while your positions remain open, helping you separate realized gains from unrealized ones.

Balance also updates after:

• Deposits or withdrawals
• Closed trades
• Rollovers or overnight interest adjustments

You should keep a check on the balance so you can measure actual account growth and track how much capital you have truly gained or lost from completed trading activity.

Unrealized P/L (Floating P/L)

Unrealized P/L shows the current profit or loss of your open positions. It updates in real time as market prices move. The value is considered “unrealized” because the position has not yet been closed.

This amount reflects how your trades are performing at any given moment. It adds or subtracts from your equity but does not affect your balance until the position closes.

For example, if you open a trade and it moves in your favor by 50 pips, the floating P/L shows the gain. If the market reverses, the number adjusts to reflect the new result.

Floating P/L plays a key role in:

• Equity calculation
• Margin level tracking
• Risk awareness

You can use it to assess when to close trades, scale in or out, or respond to shifting conditions. A large negative floating P/L reduces equity and may bring your account closer to a margin call or stop out.

Equity

Equity represents the real-time value of your trading account. It includes your balance along with the floating profit or loss from all open positions.

If you have no trades open, equity equals your balance. When you do have trades running, equity changes constantly based on market movement.

Formula:
Equity = Balance + Floating P/L

For example, if your account balance is $1,000 and your open position is showing a floating profit of $250, your equity becomes $1,250. If the position shows a floating loss of $150, your equity drops to $850.

Equity gives you the most accurate picture of your account’s current strength. It determines how much margin you can use, how much you can withdraw, and how close you are to a margin call or stop out.

Equity affects other metrics like:

• Free Margin
• Margin Level
• Overall account health

So, if you monitor equity, you can stay in control as it tells you how much of your account value is truly available and how much is affected by open trade performance.

Used Margin

Used margin is the total amount of your account currently locked to maintain all open positions. It includes the required margin from every active trade.

When you open a position, a portion of your funds becomes unavailable. That amount forms part of your used margin. If you open multiple trades, the used margin is the combined total across all of them.

Formula: 

Used Margin = Sum of Required Margins for All Open Positions

For example, if you have three trades open with required margins of $150, $200, and $100, your used margin is $450.

Used margin helps you measure how much of your account is currently committed. It plays a direct role in calculating free margin and margin level.

A higher used margin means less flexibility for opening new trades. If market prices move against your positions, and your floating loss increases, your used margin stays fixed, but your available equity may shrink.

Free Margin

Free margin is the amount of equity left in your account after covering the margin used by your open positions. It shows how much you can use to open new trades or hold against market fluctuations.

Formula: Free Margin = Equity − Used Margin

For example, if your equity is $1,200 and your used margin is $400, your free margin is $800. This is the amount you still have available for trading.

Free margin changes in real time as your floating profit or loss changes. When your trades move in your favor, equity increases, and so does free margin. When trades move against you, free margin shrinks.

If free margin drops too low, your account may enter a margin call condition. If it reaches zero, you will not be able to open new trades.

Free margin helps you:

• Monitor your available trading power
• Control how many trades you can open safely
• Measure buffer space before hitting risk levels

You need to manage the free margin to keep your trading account stable. It gives you room to adapt, adjust, or close trades before problems arise.

Risk Indicators

Margin risk indicator jargons reveal pressure points inside the account. Margin levels, thresholds, and exposure limits appear through fixed percentage values.

Margin Level

Margin level is a key risk indicator in forex trading. It shows the ratio between your equity and the margin currently in use. Brokers use it to measure your account’s ability to sustain open trades.

Formula:
Margin Level = (Equity ÷ Used Margin) × 100%

For example, if your equity is $2,000 and your used margin is $500:
Margin Level = (2,000 ÷ 500) × 100 = 400%

Margin level reflects how much room your account has before reaching critical thresholds. When the number is high, your account remains strong. When it drops closer to the broker’s margin call level, your risk increases.

Most brokers use the following levels:

• Above 100% → Your account is in a healthy state
• At 100% → You reach the margin call level; new trades are blocked
• Below 50% → You reach the stop out level; trades begin closing automatically

Margin level updates constantly as prices move. A drop in floating equity pulls the margin level lower, pushing your account closer to intervention. A rise in floating profit raises your margin level and restores buffer space.

Now it should be clear that the single percentage of margin level helps you understand the true risk position of your account. It alerts you early, which gives you time to act before liquidation begins.

Margin Call Level

Margin call level marks the limit where a trading account loses the ability to open new positions. Brokers use this threshold to contain risk before positions collapse.

A margin level at or below the call level signals full commitment of equity. Brokers then disable trade entries and issue a warning.

The majority of brokers define the call level at 100%. At that point, equity equals used margin.

For example:
Used Margin = $1,000
Equity = $1,000
Margin Level = 100%
Margin Call Level = 100%

No buffer remains once the margin level reaches the call threshold. Additional losses push the account toward stop out territory.

Stop Out Level

Stop out level marks the point where the broker begins closing trades automatically to limit further loss. The platform no longer allows the account to remain open under risk. At this level, margin protection shifts from warning to action.

Most brokers place the stop out level below the margin call level. A common setting is 50%. Once the margin level falls to this percentage, the platform starts liquidating trades.

The process works like this:

• Equity reaches a point where it equals 50% of used margin
• Margin level hits the 50% threshold
• Platform identifies the trade with the highest loss
• That trade closes first, releasing margin
• If needed, the platform closes more trades until the margin level rises above 50%

For example, an account with $1,000 in used margin reaches $500 in equity. Margin level drops to 50%. The platform automatically closes positions to reduce exposure.

Margin Calculations

Now, let’s discuss how to calculate different types of margin for distinct trading gaols.

How to Calculate Required Margin?

Required margin depends on the position size, the margin percentage, and the account currency relationship to the traded pair. The calculation shows how much capital the broker must lock before a trade opens.

Use the following approach when the account currency matches the base currency of the pair:

• Required Margin = Notional Value × Margin Requirement

For example, a $100,000 trade with a 1% margin requirement needs $1,000 as required margin.

Use an adjusted formula when the account currency differs from the base currency:

• Required Margin = Notional Value × Margin Requirement × Exchange Rate

In this case, the exchange rate converts the base value into your account currency, allowing the platform to reserve the correct amount.

Required margin always applies per position. Each open trade locks a separate amount. Total used margin equals the sum of all required margins.

How to Calculate Margin Level?

Margin level shows the relationship between your account equity and the margin currently in use. The platform uses this value to measure account strength and apply risk controls.

Use the following formula:

• Margin Level = (Equity ÷ Used Margin) × 100

For example, an account with $1,200 in equity and $400 in used margin has a margin level of 300%. The platform views this as a healthy range, far from any critical thresholds.

Higher margin levels indicate more buffers. Lower margin levels signal increased exposure.

Interpret margin level ranges as follows:

• Above 100% = safe and tradable
• At 100% = margin call level (no new trades)
• Below 50% = stop out risk (forced liquidation starts)

Margin level changes in real time. As floating profit increases, equity rises, and margin level improves. As floating loss increases, equity drops, and margin level weakens.

How to Calculate Free Margin?

Free margin shows the portion of your account equity that remains available for new trades. It reflects how much capital you can use without affecting current positions.

Use the formula below:

• Free Margin = Equity − Used Margin

Example: If equity equals $1,500 and used margin equals $600, the free margin equals $900.

A high free margin indicates strong flexibility. A low free margin shows limited room for trade entries or market movement.

Free margin serves key functions:

• Supports new trades
• Acts as a buffer against drawdowns
• Helps maintain distance from margin call levels

Free margin changes continuously. As floating profit rises, equity increases and free margin expands. As floating loss grows, equity decreases and free margin contracts.

Quick Summary