Leverage, margin and margin calls

Margin is a reservation, not a fee or loss limit

In a simplified example, initial margin equals notional exposure divided by the leverage ratio. USD 10,000 of exposure at 20:1 leverage requires USD 500 initial margin. Actual requirements depend on the instrument, account, currency conversion and provider rules; they can change.

If the position loses 1% of USD 10,000 exposure, its gross price loss is USD 100. That is 20% of the USD 500 initial margin. The loss acts on the full exposure, not merely on the margin reservation. Higher available leverage is not a recommendation to use it.

Account measures

Balance generally reflects settled account amounts. Equity also reflects open-position results and applicable adjustments. Used margin is the amount reserved for open positions; simplified free margin is equity minus used margin. Margin level is commonly equity divided by used margin, multiplied by 100%, when used margin is positive.

A margin call is a provider-defined warning or requirement associated with account margin conditions. Stop-out or close-out can involve forced position closure under the provider's rules. Do not assume a warning arrives in time to act or that every provider uses the same thresholds. Read the contract rather than inventing a universal percentage.

Protect the account before entry

Plan adverse movement, costs, correlated exposure and possible gaps before choosing volume. Keeping spare margin is not a guarantee of protection. Losses can be rapid, and whether losses are limited to a deposit depends on product rules and applicable protections. Never assume negative-balance protection without checking the terms.