Margin Explained

Margin is the portion of your account balance that gets "locked up" as collateral when you open a trade. It is not spent or lost — it is simply reserved by your broker for as long as the position stays open, and it is returned to your available balance the moment you close the trade. Think of it like a security deposit rather than a cost.

Leverage and margin are closely related but describe different things. Leverage is the ratio that determines how much market exposure you can control relative to your own capital, for example 1:100. Margin is the actual cash amount required to open that exposure. If a broker offers 1:100 leverage and you want to control a 100,000 unit position, the margin requirement is roughly 1,000 units of your account currency — the leverage ratio is what produces that specific margin number. Beginners often say "I used 100x leverage" when what actually happened is their broker required 1% margin; the two ideas are two sides of the same coin, but margin is the number your account actually enforces.

Every trading platform shows a running total of "used margin" and "free margin." Used margin is the total collateral currently tied up across all your open positions. Free margin is what remains available to open new trades or absorb losses. As a losing trade moves further against you, your free margin shrinks even though your used margin for that trade stays the same, because the loss is being subtracted from your overall equity.

A practical habit is to always check your margin level, shown as a percentage, before adding new positions. A high margin level means plenty of breathing room; a low one means you are closer to the danger zone covered in the next lesson on margin calls and stop outs. Margin itself is neutral — it becomes risky only when combined with oversized positions relative to account size.