What Is Margin and a Margin Call in Forex Trading?

Margin isn't a fee — it's collateral. Understanding how it works is understanding exactly how an account actually gets wiped out.

Margin Is Collateral, Not a Cost

When you open a leveraged position, your broker sets aside a portion of your account balance as collateral — that's your margin. It's not spent or lost; it's locked while the trade is open, and released back to your free balance when you close it. The amount required depends on your position size and the leverage ratio your account uses.

Example: At 1:100 leverage, opening a $10,000 position requires $100 in margin — 1% of the position value, held as collateral for as long as the trade stays open.

Free Margin, Used Margin, and Margin Level

Used margin — the total collateral currently locked across all your open trades.
Free margin — the balance still available to open new trades or absorb losses on existing ones.
Margin level — your equity (balance plus/minus unrealized profit or loss) expressed as a percentage of used margin. This is the number that actually determines whether you're in danger.

As a losing trade moves further against you, your equity falls, which drags your margin level down — even though "used margin" itself hasn't changed. This is the mechanism, and it's why an open loss shrinking your free margin is the real early warning sign, not just your account balance.

What a Margin Call Actually Is

When your margin level drops to a threshold your broker sets (commonly somewhere around 100%, though it varies by broker), you'll typically get a margin call — a warning that your account no longer has enough free margin to safely support your current open positions. It's a notification, not (yet) a forced action.

Stop-out level: If margin level keeps falling past the margin call threshold down to the broker's "stop-out level" (often lower, e.g. around 50%), the broker will start automatically closing your open positions — starting with the largest loss — to protect both you and themselves from the account going negative. This happens automatically, without waiting for you to act.

Why This Almost Never Happens With Proper Risk Management

A margin call is really a symptom of position sizing that ignored the 1-2% rule combined with using too much of the account's available leverage on too few, too-large trades. If you're sizing every trade so a full stop-loss hit only ever costs 1-2% of your account, your margin level has enormous room to move before it's ever close to a call — margin calls are a leverage/sizing problem, not a bad-luck problem.

The Practical Rule of Thumb

Keep enough free margin that even several simultaneous losing trades wouldn't meaningfully threaten your margin level. If you're regularly using most of your available margin to open positions, that's the actual warning sign — well before any official margin call notification shows up.