Understanding used margin is fundamental for anyone trading forex with leverage. At a basic level, used margin is the portion of your account equity that’s reserved by the broker to keep your current positions open. It isn’t a fee you pay out — it’s collateral set aside against the notional size of your trades. Knowing how used margin is calculated and how it interacts with your equity and free margin helps you avoid forced liquidations and manage risk more effectively.
Margin vs used margin: the idea in plain language
When you open a leveraged forex trade the broker requires a deposit to cover potential losses. That deposit is called the required margin for the position. Each open trade has its own required margin. Used margin is simply the sum of those required margins for all currently open positions in your account. While required margin belongs to each trade, used margin describes the total amount of your funds currently committed across the account.
Think of used margin as money temporarily put on hold. As long as positions remain open, those funds are not available for new trades or to absorb other losses.
How used margin is calculated — step by step
Brokers usually express margin needs as a percentage or as leverage. A 2% margin requirement is the same as 50:1 leverage (because 1 / 0.02 = 50). To find the required margin for a single position you multiply the position’s notional value (in account currency) by the margin percentage.
For example, suppose you open two mini-lot positions (each with notional value $10,000) and the broker’s margin requirements are 4% for USD/JPY and 3% for USD/CHF. The required margin for the USD/JPY position is $10,000 × 4% = $400; for the USD/CHF position it’s $10,000 × 3% = $300. The used margin for your account is the sum: $400 + $300 = $700. That $700 is held against your account equity while those trades are open.
If you then close one position, the used margin falls by the required margin of the closed trade. If the broker changes margin rules or the currency conversion rates change (see below), used margin can change even without opening or closing trades.
Relationship with balance, equity, free margin and margin level
Used margin is one part of a small ecosystem of account figures that your platform displays. Balance is the cash in your account excluding unrealised profit and loss. Equity equals balance plus unrealised P/L. Free margin (also called available margin) is the amount of equity not tied up in used margin and can be used to open new trades or absorb losses.
You can think of these relationships as simple formulas:
- Equity = Balance + Unrealised P/L
- Free margin = Equity − Used margin
- Margin level (%) = (Equity / Used margin) × 100
Imagine your account balance is $1,000 and your used margin is $700. If your open trades have an unrealised loss of $200, equity becomes $800, and free margin falls to $100. Your margin level drops to (800 / 700) × 100 ≈ 114%. If losses continue and equity falls to equal used margin, the margin level hits 100% and many brokers will restrict new trades or send a margin-call warning. If it falls further to the broker’s stop-out threshold, positions may be closed automatically.
Examples showing movement and impact
A simple timeline helps make this clear. You deposit $2,000 and open two positions requiring $800 total used margin, leaving $1,200 free. If those positions gain $300 in unrealised profit, equity rises to $2,300 and free margin to $1,500 — more room to add trades. If instead they lose $900, equity falls to $1,100 and free margin to $300. A continued adverse move might trigger a margin call or stop-out if your broker’s thresholds are reached.
Also note that used margin does not change with unrealised profit or loss — it only changes when you open/close trades, when margin requirements change, or when currency conversions alter the required amount. Unrealised P/L affects equity and therefore free margin and margin level.
Broker-specific details and common variations
Brokers differ in how they calculate and present margin. Common differences include how they convert margin requirements when the base currency of the pair differs from your account currency, whether margin is recalculated intraday or only at set times, and whether they apply step margins (higher % for larger positions). During periods of extreme volatility or around major news events brokers can increase margin requirements temporarily to protect themselves and clients; this raises your used margin and reduces free margin even though you haven’t changed positions.
Some platforms calculate ongoing margin once at order placement and leave it fixed, while others recalculate it regularly — check your broker’s policy. Also, regulatory frameworks and account types (retail vs institutional) can influence margin levels and protections such as negative balance coverage.
Practical implications for trade management
Used margin directly limits how many and how large new positions you can open. If you don’t keep enough free margin, you’ll be unable to add positions, and your account will have less buffer against adverse moves. Good practice includes sizing positions so that used margin stays at a comfortable proportion of equity, using stop-loss orders to limit downside, and avoiding opening multiple correlated trades that consume large amounts of margin simultaneously.
Monitoring margin level in real time helps you spot risk early. If the margin level approaches your broker’s margin call threshold, you can either deposit more funds, reduce position sizes by closing trades, or hedge exposure to protect equity. Conservative traders often keep a substantial free margin cushion to survive volatile price swings without getting stopped out.
Risks and caveats
Trading on margin amplifies both gains and losses. A modest adverse price move can quickly erode equity when multiple leveraged positions are open, shrinking free margin and risking margin calls or forced liquidations. Brokers’ margin policies vary: some will close positions without warning once the stop-out level is reached, while others may give advance notices; some provide negative balance protection, others don’t. Slippage and price gaps during market opens or major news can also cause positions to be closed at worse prices than expected, increasing realised losses. Because of these factors, never assume margin rules are the same across brokers or markets, and don’t treat used margin as “free money.” This is general educational information and not personalised financial advice; trading carries risk and you can lose more than your initial investment depending on product and broker terms.
Key takeaways
- Used margin is the total of all required margins for your open positions — funds set aside as collateral, not a fee.
- Free margin = Equity − Used margin; margin level = (Equity / Used margin) × 100, and these numbers drive margin calls and stop-outs.
- Brokers can change margin requirements (conversion rates, step margins, volatility increases), which affects used margin even if you don’t trade.
- Manage used margin by sizing positions sensibly, keeping a cushion of free margin, and understanding your broker’s margin and liquidation policies.
References
- https://www.babypips.com/learn/forex/what-is-used-margin
- https://www.ig.com/en-ch/learn-to-trade/ig-academy/the-basics-of-forex-trading/margin-in-forex-trading
- https://www.equiti.com/sc-en/news/trading-ideas/margin-levels-in-forex-trading-what-traders-should-know/
- https://www.schwab.com/learn/story/what-is-leverage-forex-trading-understanding-forex-margin
- https://www.forex.com/en-us/about-us/financial-transparency/trade-margins/
- https://www.ebc.com/forex/free-margin
- https://www.dukascopy.com/swiss/english/marketwatch/articles/forex-margin/
- https://mondfx.com/what-are-margin-and-margin-level/