What is Margin? - Deepstash

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What is Margin?

When trading forex, you are only required to put up a small amount of capital to open and maintain a new position.

This capital is known as the margin.

Margin can be thought of as a good faith deposit or collateral that’s needed to open a position and keep it open.

Margin is NOT a fee or a transaction cost.

Margin is simply a portion of your funds that your forex broker sets aside from your account balance to keep your trade open and to ensure that you can cover the potential loss of the trade.

This portion is “used” or “locked up” for the duration of the specific trade.


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What is Unrealized P/L and Realized P/L?

When trading, there are actually two different types of “profit or loss”, also known as “P/L”.

  • Unrealized P/L or Floating P/L refers to the profit or loss held in your current open positions or your currently active trades. Your unrealized P/L continuo...


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What is Account Balance?

In order to start trading forex, you need to open an account with a retail forex broker or CFD provider.

Once your account is approved, then you can transfer funds into the account.

This new account should only be funded with “risk capital”, which is ...


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Profit Isn’t Real Until It’s Realized

  • Realized profits are gains that have been converted into cash and ADDED to your account balance. 
  • Realized losses are losses that have been converted into cash and DEDUCTED from your account balance.

In other words, for you to rea...


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Different Forex Brokers Have Different Margin Call and Stop Out Levels

Each retail forex broker or CFD provider sets their own Margin Call Level and Stop Out Level.

Depending on the broker, a “Margin Call” can be one of two things:

  • If there is a separate Stop Out, your broker sends you a warning that your account eq...


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What is Used Margin?

Used Margin is the TOTAL amount of margin currently in use to maintain all open positions.

Said differently, it is the SUM of all Required Margin being used.

If you open more than one position at a time, each specific position will have its own Required Margin.



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What is a Margin Call?

In forex trading, the Margin Call is when the Margin Level has reached a specific level or threshold.

When this threshold is reached, you are in danger of the POSSIBILITY of having some or all of your positions forcibly closed (or “liquidated“).

If th...


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The Relationship Between Margin and Leverage

You use margin to create leverage.

Leverage allows you to trade positions LARGER than the amount of money in your trading account.

Leverage is the ratio between the amount of money you really have and the amount of money you can trade.

When a trader opens a position, they are re...


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What is Margin Trading?

What is Margin Trading?

The biggest appeal that forex trading offers is the ability to trade on margin.

Margin trading gives you the ability to enter into positions larger than your account balance.

With a little bit of cash, you can open a much bigg...


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The Difference between Equity & Balance

If your account is “flat” or does NOT have any positions open, then your Balance and Equity are the SAME.

But if you do have open positions, this is when the Balance and Equity differ.

  • The Balance reflects your profit/loss from closed positions (realized P/L).


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What is Margin Level?

The Margin Level is the percentage (%) value based on the amount of Equity versus Used Margin.

  • The higher the Margin Level, the more Free Margin you have available to trade.
  • The lower the Margin Level, the less Free Margin available to trade, which could result...


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What is Required Margin?

Required Margin is the amount of money that is set aside & “locked up” when opening a position. It is also known as Deposit Margin, Entry Margin, or Initial Margin.

When trading with margin, the amount of margin (Required Margin) needed to hold open a position is calculated...


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How to Avoid a Margin Call

Here are five ways to avoid a margin call.

  1. Know a margin call is.
  2. Know what the margin requirements are even before you place ANY order.
  3. Use stop loss or trailing stops to avoid margin calls.
  4. Scale in positions rather than entering all at once.
  5. Know what...


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What is a Stop Out Level?

The Stop Out Level is when the Equity is lower than a specific percentage of your Used Margin.

This liquidation happens because the trading account can no longer support the open positions due to a lack of margin.

If this level is reached


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What is Equity?

Equity is your account balance plus the floating profit (or loss) of all your open positions.

Equity represents the “real-time” value of your account.

As your current trades rise or fall in value, so does your Equity.

  • If you do NOT have any...


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What is Free Margin?

Free Margin is the money that is NOT “locked up” due to an open position and can be used to open new positions.

When Free Margin is at zero or less, additional positions cannot be opened.

Free Margin can be thought of as two things:

  • The amount available to ...


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Margin Calls and Stop Outs occur due to overleveraging. Using more leverage can increase your gains, but it can also increase losses, which will quickly deplete your Free Margin. The more leverage you use, the faster your losses can accumulate.


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‘Margin of safety’ is the difference between a stock price and its intrinsic worth, or value.

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