Margin is a performance bond, or good-faith deposit, to ensure against trading losses. The margin requirement allows traders to hold a position much larger than their account's value. FXCM's most lenient margin requirement is .5%. FXCM' s online trading platform has margin management capabilities, which allows for this high leverage.
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In the event that funds in the account fall below margin requirements, all open positions are triggered to close. This is designed to prevent clients' accounts from falling into a negative balance, even in a highly volatile, fast-moving market.
For example, let's say you have an account with $10,000. That means you have $10,000 of usable margin. If you use $7,000 to buy seven lots of USD/JPY, you now have $3,000 of usable margin left, meaning that you are allowed to lose $3,000 before you are under the margin requirement. The account equity remains at $10,000 until you begin to make or lose money on the position. Now, if the USD/JPY decreases to the point that you end up losing the $3,000 that is left in your account, then all open positions are triggered to close to ensure that you do not lose more than you have in your account.
How are leverage and margin related?
Leverage and margin are related in the way mentioned above—the amount of leverage a market maker gives to a client defines the amount of margin that the client will have to commit to in order to take a position in the market. For example, when leverage is 100:5, the "5" in the leverage ratio signifies the amount of capital the customer has invested of his own money, which is also known as the margin.
