Margin explained: the five numbers on your account

Balance, equity, used margin, free margin and margin level. Every leveraged platform shows all five, most traders watch one of them, and the one most people watch is the one that tells you least.

5 min read

A set of brass apothecary scales with weights arranged on the counter beside them — Margin is not spent. It is set aside, and it comes back when the position closes.

Open a leveraged position and your platform starts showing five figures instead of one. They are not independent readings. They are one calculation, viewed from five angles, and once you can see how they move together the behaviour of a leveraged account stops being mysterious.

This guide takes one $2,000 account and follows it through a losing trade, printing all five at every step. If you already know what leverage is, this is what it does to your account once the trade is actually open.

The five figures, in one place

Figure	What it is
Balance	Your account after completed trades. It does not move while a position is open.
Equity	Balance plus or minus what your open positions are currently worth. This is the real number.
Used margin	The part of your equity reserved to support open positions.
Free margin	Equity minus used margin. What is left to absorb losses or open more.
Margin level	Equity ÷ used margin × 100, as a percentage. What the broker watches.

Balance is the figure most people look at, and it is the only one that tells you nothing about an open position.

One account, one losing trade

A $2,000 deposit, one position requiring $500 of margin. Nothing else changes: no new trades, no deposits, no change to the margin requirement. The market simply moves against the position.

Stage 1: position opened
Balance
$2,000
Open P&L
$0
Equity
$2,000
Used margin
$500
Free margin
$1,500
Margin level
400%
Comfortable. Three quarters of the account is still free to absorb a loss.
Stage 2: down $500
Balance
$2,000
Open P&L
−$500
Equity
$1,500
Used margin
$500
Free margin
$1,000
Margin level
300%
The balance has not moved and will not until the trade closes. The account is nonetheless worth $500 less than it was, and the platform will happily keep showing you $2,000.
Stage 3: down $1,000
Balance
$2,000
Open P&L
−$1,000
Equity
$1,000
Used margin
$500
Free margin
$500
Margin level
200%
Half the original equity is gone. Used margin has not changed, because the position has not changed - only the equity supporting it.
Stage 4: down $1,500
Balance
$2,000
Open P&L
−$1,500
Equity
$500
Used margin
$500
Free margin
$0
Margin level
100%
Free margin is exhausted and equity now equals used margin exactly. At many brokers this is the margin-call threshold, and further losses head towards forced liquidation.

Simplified: spread, commission and overnight financing are excluded, and a real broker can change the margin requirement while the position is open.

Balance is history. Equity is the present tense, and it is the only one of the five that reflects a position you have not closed yet.

Working out what a position will reserve

Before opening anything, this is the calculation that tells you how much of your account disappears into used margin. Both routes give the same answer; brokers publish sometimes one, sometimes the other.

One standard lot of EUR/USD at 1% margin

Contract size1 standard lot100,000 units
Position valueapprox.$100,000
From the percentage$100,000 × 1%$1,000
From the ratio$100,000 ÷ 100$1,000

Used margin for that one position$1,000On a $2,000 account that is half the equity reserved for a single trade, leaving very little to absorb a move against it.

Several positions, one pool

Margin is not tracked per trade in any way that protects you. Every open position draws from the same equity, so three modest trades can leave an account as exposed as one large one - and the platform will show three comfortable-looking margin requirements while doing it.

It gets worse when the positions are related. Long EUR/USD, long GBP/USD and long AUD/USD are three margin requirements and, economically, one bet against the US dollar. If it strengthens sharply they lose together, and the account's margin level falls three times as fast as any single trade would suggest. That trap is the subject of diversification, which is not the topic most traders expect it to be.

CFD margin and stock margin are not the same thing

Both are called margin trading and the mechanics are genuinely different, which matters for what you owe and what you own.

Forex and CFD margin

No borrowing and no ownership. You enter a contract whose value tracks a market, and the broker reserves part of your equity as collateral against it.

There is no loan interest. Positions held overnight incur a swap or financing adjustment instead, charged per night and in either direction depending on the instrument.

Traditional stock margin

You borrow money from the broker to buy securities you then actually own, and those securities act as collateral for the loan.

The broker charges interest on the borrowed amount. Leverage is usually far lower - often 1:2 - and a decline in the holdings can require you to deposit more or have shares sold.

Both can be liquidated by the broker. The legal and economic structures behind that liquidation are different.

Where new traders get caught

Two mistakes account for most of the damage. The first is treating free margin as spending money - it is the buffer, and an account with none of it left has no capacity to survive an ordinary adverse move. The second is reading the margin requirement as the maximum possible loss. It is not. A $100 requirement can support a position that loses $300, and your remaining equity covers the difference until the broker stops it.

Ninety-nine of the hundred brokers we rate offer a demo account. Watching these five numbers move on a simulated position for a week is the cheapest way to understand them, and the only way that costs nothing.

Questions people ask about margin

Is margin the amount I can lose?

No. Margin is what the broker reserves to support the position. Profit and loss are calculated on the full position size, so you can lose considerably more than the margin that opened the trade.

What does 5% margin mean?

You need $5 for every $100 of exposure, which is about 1:20 leverage. A $10,000 position would reserve $500.

Why is my balance different from my equity?

Because you have an open position. Balance records completed trades only; equity adds the unrealised profit or loss on anything still open. They match again the moment everything is closed.

Why did my free margin fall when I did not open anything?

Most likely an open position lost value, which reduces equity and therefore free margin. It can also happen if the broker raised the margin requirement, or if financing charges were applied.

What happens when free margin reaches zero?

You generally cannot open anything new. Existing positions usually stay open until the account reaches the broker's margin call or stop-out thresholds, which are separate levels.

Do I pay interest on margin?

In a traditional stock margin account, yes - on the borrowed amount. In forex and CFD accounts there is normally no loan interest, but positions held overnight incur swap or financing charges instead.

Can the margin requirement change while my trade is open?

Yes, and it does. Volatility, major announcements, weekends and position size can all raise it, which increases your used margin without your position changing at all.

Ready to put this to work?

Our questionnaire ranks all 100 brokers against your own answers in about a minute - including, if it matters to you, filtering out the ones whose leverage and protections do not suit how you intend to trade.

Find my broker Browse all 100 reviews

Nothing here is financial advice. Leveraged products can lose more than they make.