What it is, how it works, and how to calculate it
When you trade CFDs or forex on leverage, margin is the deposit you set aside to open and maintain your positions. It is not a fee, it is a portion of your account equity held as collateral. Understanding how margin works gives you greater control over your risk and helps you manage your exposure with precision.
Leverage allows you to control a larger position than your account balance would otherwise permit. For every unit of currency you commit as margin, your broker effectively extends your buying power by a set multiple.
For example, with 30:1 leverage on a major forex pair, you can control £30,000 in the market by setting aside roughly £1,000 as margin.
Your margin is a fraction of the total position
Set aside as collateral to open the trade
Without leverage
£1,000
You control
£1,000
in the market
30:1
leverage
With leverage
£1,000 margin
You control
£30,000
in the market
The relationship between leverage and margin is inverse. Higher leverage means a lower margin requirement, and vice versa.
Leverage = 1 ÷ margin %
20:1 = 1 ÷ 5%
Entry/maintenance margin – the initial deposit required to open a position and keep it open. This is sometimes called the minimum margin requirement (MMR). You can view this figure per instrument before you place a trade.
Liquidation margin – the minimum equity threshold your account must maintain. This is typically set at 50% of the maintenance margin. If your equity falls below this level, your positions may be closed automatically to prevent further losses.
If your equity drops below the maintenance margin but remains above the liquidation margin, you will receive a margin warning and will not be able to open new positions until your equity recovers.
Initial deposit required to open and keep a position open. Viewable per instrument before placing a trade.
Equity has dropped below maintenance margin but remains above liquidation level. No new positions can be opened until equity recovers.
Minimum equity threshold. If breached, positions may be closed automatically to prevent further losses.
Forex margin
Forex margin is calculated as a percentage of the notional value of your trade. The notional value is the full size of the position in the counter currency.
Notional =
The full value of the position in counter currency
Margin =
Your margin is a fraction of the total position
CFD margin
CFD margin works similarly, but the notional value calculation includes a multiplier – a factor specific to each instrument that scales the contract to an appropriate size.
Effective leverage measures how much of your total account equity is being used relative to the combined notional value of all your open positions. It is a useful gauge of your overall risk exposure.
There are two key thresholds to monitor:
Margin warning – triggered when your account equity falls below the maintenance margin requirement. While in a margin warning, you can still hold your existing positions but cannot open new trades. This is your signal to consider depositing additional funds or reducing your exposure.
Margin call (liquidation) – triggered when your equity falls below the liquidation margin (typically 50% of the maintenance margin). At this point, positions will be closed automatically at the best available price to bring your account back above the required threshold.
Example: margin call in practice
You hold a position requiring £1,000 in maintenance margin. The liquidation margin is 50% of that, or £500.
Two thresholds to monitor as your equity changes
| Account equity | Maintenance margin | Liquidation margin | Status |
|---|---|---|---|
| £1,200 | £1,000 | £500 | Normal |
| £800 | £1,000 | £500 | Margin warning |
| £450 | £1,000 | £500 | Margin call |
When equity drops to £800, a margin warning is issued. If the market continues to move against the position and equity falls to £450 – below the £500 liquidation threshold – positions are closed automatically.
Stay in control of your margin
Managing margin effectively is central to disciplined trading. A few practical steps can help you maintain a clear picture of your exposure and avoid unwanted liquidations.