Key Takeaways
- Margin is a deposit, not a fee. The broker holds it while a trade is open, and at 1:100 leverage, 1 lot of EUR/USD at 1.0850 needs about $1,085 of margin.
- Free margin is equity minus used margin. It shrinks as open trades lose money, and when margin level falls to your broker’s stop out level, trades are closed automatically.
- Leverage does not change profit or loss per pip. Lot size does. Higher leverage only lets you open bigger positions, which is where the real danger lies.
- Size trades by risk, not by available margin. In our example, 0.50 lots on a $1,000 account was stopped out after about 146 pips, while 0.03 lots with a 30 pip stop risked only about $10.
Margin is the money your broker sets aside from your account to keep a trade open. Leverage is what lets that margin control a much larger position, such as $1,000 of margin controlling a $100,000 trade at 1:100. Free margin is the money left over that you can still use, and it shrinks when your open trades lose money. If free margin runs out, the broker can close your trades automatically.
These three terms explain why accounts get margin calls, why leverage is not the same as risk, and how much room you really have before a losing trade becomes a forced close. This guide explains each one in plain language, with step by step examples in dollars, and shows where to find them in MT4 and MT5.
The Key Terms in One Table
| Term | Simple meaning | Formula |
|---|---|---|
| Balance | Your account value from closed trades only | Deposits + closed profits − closed losses |
| Equity | Your account value right now, including open trades | Balance + open profit or loss |
| Margin (used margin) | Money held by the broker to keep open trades running | Position value ÷ leverage, for each trade |
| Free margin | Money still available for new trades or to absorb losses | Equity − used margin |
| Margin level | How healthy your account is, as a percentage | Equity ÷ used margin × 100 |
| Leverage | How many times larger your position can be than the margin | Shown as a ratio, such as 1:100 |
What Is Margin?
Margin is not a fee and it is not spent. It is a deposit the broker holds while your trade is open, a bit like a security deposit on a rental. When you close the trade, the margin is released back to your free margin, plus or minus whatever the trade made or lost.
How margin is calculated
For a forex pair where the second currency matches your account currency, the calculation is:
Margin = lots × contract size × price ÷ leverage
One standard lot of a currency pair is usually 100,000 units of the first currency. So for EUR/USD at 1.0850, on a US dollar account with 1:100 leverage:
| Position | Position value | Margin at 1:100 |
|---|---|---|
| 0.01 lot | 1,000 × 1.0850 = $1,085 | $10.85 |
| 0.10 lot | 10,000 × 1.0850 = $10,850 | $108.50 |
| 0.50 lot | 50,000 × 1.0850 = $54,250 | $542.50 |
| 1.00 lot | 100,000 × 1.0850 = $108,500 | $1,085 |
For other instruments, the contract size changes. Gold is often 100 ounces per lot, silver often 5,000 ounces, and stock CFDs often one share or 100 shares per lot, so always check the symbol’s specification. Brokers can also set different leverage for different instruments, so gold or indices may need more margin than a major currency pair. MetaQuotes’ guide to how MetaTrader 5 calculates margin for forex shows the formulas used for each case.
What Is Leverage?
Leverage is the ratio between the size of your position and the margin needed to open it. At 1:100, every $1 of margin controls $100 of position. At 1:30, every $1 controls $30.
| Leverage | Margin needed for 1 lot of EUR/USD at 1.0850 |
|---|---|
| 1:10 | $10,850 |
| 1:30 | $3,617 |
| 1:50 | $2,170 |
| 1:100 | $1,085 |
| 1:500 | $217 |
Higher leverage means less margin per trade, so more free margin is left over. What it does not change is how much each pip is worth. One lot of EUR/USD is worth about $10 per pip at 1:30 and at 1:500. The section on leverage myths below explains why that matters.
Equity, Free Margin and Margin Level
Once a trade is open, three numbers change with every tick.
- Equity rises and falls with your open profit or loss.
- Free margin is equity minus used margin, so it falls as open losses grow.
- Margin level compares equity with used margin. Above 100%, your equity is larger than the margin in use. Below 100%, open losses have eaten into the margin itself.
Your broker sets two important margin level thresholds:
| Threshold | What happens | Typical example |
|---|---|---|
| Margin call level | You get a warning, and you usually cannot open new trades | 100% |
| Stop out level | The broker starts closing your trades, usually the biggest loser first, until the margin level recovers | 50% |
These levels vary between brokers and account types, so check your own broker’s figures. Our guide to margin calls in forex covers what happens at each stage in more detail.
Worked Example: From Opening a Trade to a Stop Out
Say you deposit $1,000 on an account with 1:100 leverage, a margin call level of 100% and a stop out level of 50%. You buy 0.50 lots of EUR/USD at 1.0850. At this size, each pip is worth about $5.
Step 1: Opening the trade
| Value | |
|---|---|
| Balance | $1,000 |
| Used margin | $542.50 |
| Equity | $1,000 |
| Free margin | $1,000 − $542.50 = $457.50 |
| Margin level | $1,000 ÷ $542.50 × 100 = 184% |
Step 2: Price moves against you
| Price falls by | Open loss | Equity | Free margin | Margin level | What happens |
|---|---|---|---|---|---|
| 20 pips | $100 | $900 | $357.50 | 166% | Nothing yet |
| 50 pips | $250 | $750 | $207.50 | 138% | Nothing yet |
| About 91 pips | About $457 | About $543 | About $0 | 100% | Margin call: no new trades |
| About 146 pips | About $729 | About $271 | Negative | 50% | Stop out: the trade is closed |
In this example, a move of about 146 pips closes the trade automatically, with a loss of roughly $729, or 73% of the account. Nothing about the strategy or the stop loss made that decision. The position was simply too large for the account.
Step 3: The same trade with proper size
Now say you risk 1% of the account, $10, with a 30 pip stop loss. That means about $0.33 per pip, or roughly 0.03 lots.
| 0.50 lots, no stop | 0.03 lots, 30 pip stop | |
|---|---|---|
| Used margin | $542.50 | About $33 |
| Margin level at opening | 184% | About 3,000% |
| Loss if price falls 30 pips | $150 | About $10 |
| Pips needed to reach stop out | About 146 | Far beyond the stop loss |
With a sensible lot size and a stop loss, margin almost never becomes a problem. The stop loss closes the trade long before free margin runs out. Our guide to lot sizes and leverage for small accounts shows how to calculate lot size for any account.
The Biggest Leverage Myth
Many traders believe higher leverage means higher risk. That is only half true. Leverage itself does not change how much you win or lose per pip. Your lot size does. What leverage changes is how large a position you are allowed to open, and that is where the danger comes from.
Worked example: 1:100 vs 1:500 on the same trade
Take the same $1,000 account and the same 0.50 lot EUR/USD trade from the example above, with a 50% stop out level.
| 1:100 leverage | 1:500 leverage | |
|---|---|---|
| Used margin | $542.50 | $108.50 |
| Free margin at opening | $457.50 | $891.50 |
| Value of each pip | $5 | $5 |
| Loss after a 40 pip move | $200 | $200 |
| Pips to stop out | About 146 | About 189 |
| Loss at stop out | About $729 | About $946 |
On the same trade, the profit and loss per pip are identical. Higher leverage only means less margin is locked up, so the account can take a longer losing move before the broker steps in. That sounds safer, but in this case it simply lets the loss grow larger before the trade is closed.
The real danger is the size higher leverage allows. At 1:500, the same $1,000 can open more than 4 lots of EUR/USD before free margin runs out. At about $40 per pip, a move of around 25 pips would wipe out the account. At 1:30, the largest position available would be around 0.27 lots.
Effective leverage: the number that actually matters
The leverage your broker offers is the maximum. The leverage you actually use is:
Effective leverage = total position value ÷ equity
In the 0.50 lot example, the position is worth $54,250 on $1,000 of equity, so effective leverage is about 54 times, even though the account is set to 1:100 or 1:500. In the 0.03 lot example, effective leverage is about 3 times. Keeping effective leverage low is what protects the account.
Leverage Limits Around the World
Regulators in many countries cap the leverage brokers can give to retail clients.
| Region | Typical retail limit on major currency pairs | Other examples |
|---|---|---|
| European Union and United Kingdom | 1:30 | 1:20 on gold and major indices, 1:5 on individual shares, 1:2 on crypto |
| Australia | 1:30 | Similar limits to the EU for other products |
| United States | 1:50 | 1:20 on other currency pairs |
| Many offshore jurisdictions | Often 1:500 or more | Varies widely by broker |
Professional clients who meet set criteria can sometimes get higher leverage, but usually lose some protections in return. Retail clients in the EU, UK and Australia generally get negative balance protection, which means a fast market cannot leave you owing the broker more than your deposit. Many offshore brokers offer it too, but not all, so check before choosing.
Whatever the limit, the same rule applies: size each trade by how much you are willing to lose, not by how much leverage lets you open. Our guide to the 1% rule in forex explains that method.
Where to Find Margin and Free Margin in MT4 and MT5
In both platforms, open the Terminal or Toolbox window (Ctrl+T) and look at the Trade tab. The line under your open trades shows:
- Balance: closed trade value.
- Equity: balance plus open profit or loss.
- Margin: total margin used by open trades.
- Free margin: equity minus margin.
- Margin level: equity divided by margin, as a percentage. It only appears when trades are open.
To see how much margin a symbol needs before you trade, right click it in Market Watch and choose Specification. Check the contract size, the margin currency and any margin rate, since brokers can set higher margin on some instruments, around weekends or before major events. The New Order window in MT5 also shows the margin a trade will need.
How to Manage Margin and Free Margin
- Size trades by risk, not by free margin. Free margin tells you what you can open, not what you should.
- Use a stop loss on every trade. It closes losing trades long before free margin runs out.
- Keep margin level high. If your margin level regularly drops below a few hundred percent, your positions are probably too large for the account.
- Watch correlated positions. Several trades on pairs that move together use margin like several trades but lose like one large one.
- Do not add to losing trades to average down. Each new position uses more margin while the account is already losing.
- Check margin changes before weekends and big events. Some brokers raise margin requirements at these times, which can cut free margin suddenly.
- Remember hedged margin. A hedged position may need little extra margin, but swaps and spreads still apply. Our guide to forex hedging covers the details.
Precious metals, indices and stocks often need more margin per dollar of position than major currency pairs, and their contract sizes are different. Our guides to the symbol of silver in forex and the best stocks to trade on MetaTrader 5 show how lot sizes work on those markets.
Margin and Trading Bots
An Expert Advisor can use margin much faster than a manual trader, because it may open several positions at once or add positions as price moves. This matters most for grid and multi level strategies, where each new level adds margin.
Here is a simple example of a multi level bot that doubles size at each level on EUR/USD at 1:100:
| Level | Lot size | Total lots open | Total margin used |
|---|---|---|---|
| 1 | 0.01 | 0.01 | About $11 |
| 2 | 0.02 | 0.03 | About $33 |
| 3 | 0.04 | 0.07 | About $76 |
| 4 | 0.08 | 0.15 | About $163 |
| 5 | 0.16 | 0.31 | About $336 |
| 6 | 0.32 | 0.63 | About $684 |
By level 6, margin use is more than 60 times the first trade, while open losses are growing at the same time. On a $1,000 account, free margin would be close to zero. This is why any bot that adds positions needs enough capital, a sensible lot multiplier, and a hard drawdown limit that closes everything before the broker’s stop out does.
XAUBOT, our own platform, lets you set a maximum drawdown that closes all trades when reached, plus the starting lot size, lot multiplier and distance between levels for Multi Level setups. The product pages list the recommended capital and leverage for each method and market. You can see them on our forex trading bot and gold trading EA pages, download bots for MetaTrader 4 or MetaTrader 5, and test any setup free for 15 days on a demo account to see how much margin it really uses.
Margin, Leverage and Free Margin Questions
Is margin a fee?
No. Margin is a deposit held while a trade is open and released when it closes. The costs of trading are the spread, commission, swap and slippage, not the margin.
What is a good margin level?
There is no fixed rule, but the higher the better. A margin level in the thousands of percent means positions are small compared with the account. A margin level close to your broker’s margin call level means one bad move could force trades closed.
What happens if free margin goes negative?
Your margin level is below 100%, so your broker’s margin call level has been reached and you cannot open new trades. If losses continue to the stop out level, the broker starts closing positions.
Does higher leverage increase profit?
Not on the same trade. Profit per pip depends on lot size. Higher leverage only lets you open bigger positions with the same deposit, which increases both possible profits and possible losses.
Can I lose more than my deposit?
With negative balance protection, which retail clients in the EU, UK and Australia generally have, no. Without it, a fast move or a gap can leave the account negative, so check your broker’s policy.
Can I change my leverage?
Usually yes, in your broker’s client area, within the limits your regulator allows. Lowering leverage does not change your profit per pip, but it does limit how large a position you can open.
Final Word
Margin is the deposit that keeps a trade open, leverage is what makes that deposit control a large position, and free margin is the room left before trouble starts. Leverage on its own is not the danger. Oversized positions are. Size trades by the amount you are willing to lose, use stop losses, and keep an eye on margin level, and margin calls should never be part of your trading.
Trading with leverage carries a high risk of loss. Only trade with money you can afford to lose.
