Margin

Margin is the collateral locked to open and hold a leveraged position. If it runs short, the broker sends a margin call or closes the position.

How it works

Margin is not a fee or a charge. It is part of your own money set aside as collateral. Its size equals the position size divided by leverage: a $10,000 position at 10x needs $1,000 of margin. When the trade closes, the margin returns to your free balance, plus the profit or minus the loss.

There is initial margin, needed to open a trade, and maintenance margin, the minimum below which margin calls and liquidation begin. Crypto exchanges offer two modes: isolated margin, where only that trade's collateral is at risk, and cross margin, where your whole balance backs it.

Margin trading means any trading with borrowed funds against collateral. It lets you open positions larger than your deposit, but the loss is counted on the full size, so the account drains faster.

Example with numbers 1

You open a $10,000 position at 10x. The exchange locks $1,000 of margin. The price moves 5% against you: a $500 loss, half of your collateral.

Example with numbers 2

In forex, 1 lot of EUR/USD at a rate of 1.08 and 1:30 leverage needs about 108,000 / 30 = $3,600 of margin. A 0.10 mini lot needs about $360.

Common mistake

Beginners treat free margin as "spare money" and keep opening trades while it lasts. The collateral ends up stretched across everything, and a small move against you triggers a margin call. Look at the risk to your stop on each trade, not at available margin. And do not confuse it with profit margin in business, the gap between price and cost.

Questions and answers

What is margin in trading in simple terms?

It is collateral from your own money that the broker or exchange holds while a leveraged trade is open. Losses come out of it first.

How do you calculate margin?

Divide the position size by the leverage. A $5,000 position at 5x needs $1,000 of margin, and at 20x it needs $250.

What is the difference between isolated and cross margin?

With isolated margin you risk only that trade's collateral. With cross margin your whole account balance supports the positions, which pushes liquidation further away but can cost you more if things go wrong.

Margin

How it works

Questions and answers

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