Exactly how much margin does the broker hold?
The formula is the same at every broker:
Required margin = (contract size × price) ÷ leverage
If you buy one standard lot of EUR/USD (100,000 euros) at 1.1000, the notional position value is $110,000. This table shows what is held from your account at different leverage settings for exactly the same trade:
| Leverage | Margin held | Margin % |
|---|---|---|
| 1:30 | $3,666.67 | 3.33% |
| 1:50 | $2,200 | 2.00% |
| 1:100 | $1,100 | 1.00% |
| 1:200 | $550 | 0.50% |
| 1:500 | $220 | 0.20% |
Note the crucial point: leverage changed neither the trade size nor your profit or loss per pip — only the amount held as collateral. Calculate any pair or size with the margin calculator.
A full example: when does the margin call arrive?
An account with $2,000 and 1:100 leverage buys one standard lot of EUR/USD at 1.1000. Used margin is $1,100 and free margin $900. Pip value for this lot is $10. The governing formula:
Margin level (%) = (equity ÷ used margin) × 100
| Move against you | Loss | Equity | Margin level | What happens |
|---|---|---|---|---|
| 0 pips | $0 | $2,000 | 181.8% | Normal |
| 50 pips | $500 | $1,500 | 136.4% | Early warning |
| 90 pips | $900 | $1,100 | 100.0% | Typical margin call |
| 145 pips | $1,450 | $550 | 50.0% | Typical stop-out |
So a 145-pip move — an ordinary day on a major pair — is enough to liquidate this position. Margin-call and stop-out levels differ between brokers, so read them in your account terms rather than assuming them.
Nominal vs effective leverage
This is the point most Arabic explanations skip, and it is the one that matters. The leverage set on your account (say 1:100) is an available ceiling, not a description of what you are doing. What determines your real exposure is:
Effective leverage = total notional exposure ÷ equity
In the example above: 110,000 ÷ 2,000 = 55:1 effective leverage, even though the account is set to 1:100. Had the same trader opened three lots instead of one, effective leverage would be 165:1 — on the identical account setting, with nothing changed in the platform. That is how two traders on the same leverage can be, respectively, conservative and one move from liquidation.
The practical rule: watch effective leverage, not the number on the account. And size positions from your stop-loss and risk percentage using the position size calculator, not from available margin.
How much movement can your account absorb? (same account, five sizes)
This table is the decisive test of the whole idea. One account ($2,000), one leverage setting (1:100), one pair — the only variable is position size. The last column shows how many pips the account can lose before a stop-out at 50%:
| Position size | Used margin | Pip value | Effective leverage | Distance to stop-out |
|---|---|---|---|---|
| 0.10 lot | $110 | $1 | 5.5:1 | ~1,945 pips |
| 0.50 lot | $550 | $5 | 27.5:1 | ~345 pips |
| 1.00 lot | $1,100 | $10 | 55:1 | ~145 pips |
| 1.50 lot | $1,650 | $15 | 82.5:1 | ~78 pips |
| 1.80 lot | $1,980 | $18 | 99:1 | ~56 pips |
Going from 0.10 to 1.80 lots shrinks the account's endurance from about 1,945 pips to 56 — a 35-fold drop in survivability without ever touching the leverage setting. This is the one practical conclusion worth remembering: leverage sets the ceiling on what you can open, while position size determines what actually happens to you. Whoever wants less risk reduces size, not leverage.
What exactly happens at the moment of stop-out
Most explanations stop at "your positions close automatically." The actual sequence matters because it determines what you find in your account afterwards:
- Margin level falls to the margin-call threshold. Nothing closes at this stage — it is a warning only, and you may not see it if you are away from the screen.
- The level keeps falling to the stop-out threshold.
- The platform begins closing positions automatically, usually the largest loser first — the order varies between brokers.
- After each close, margin level is recalculated. If it recovers above the threshold, closing stops and some positions may remain open.
- If it does not recover, closing continues to the last position.
The commonly missed point is the sixth: closes execute at the best available market price, not at the theoretical stop-out level. In a fast market or across a gap, execution can be far worse than the calculated threshold, leaving you with a bigger loss than the numbers above suggest. This is why a stop-out is never an exit plan.
When required margin changes without you doing anything
Many assume margin is a fixed number computed once at entry. In reality it changes for at least four reasons, all outside your control:
| Cause | What happens | When it bites |
|---|---|---|
| Volume-tiered leverage | Many brokers cut leverage automatically above a size threshold, so required margin jumps | As you scale size up |
| Pre-event requirement hikes | A broker may raise margin before a weekend or major event | Before holding through a weekend |
| Instrument price changes | Gold margin at $2,400 is nearly double the margin at $1,200 for the same contract | On high-priced instruments |
| Account currency moves | If your account currency differs from the quote currency, margin shifts with the exchange rate | On non-USD accounts |
The practical effect: free margin can shrink while you sleep without price moving against you at all. This is why you keep a buffer of free margin rather than running the account at its edge.
Margin on opposing positions (hedging)
Opening an opposing position on the same instrument instead of closing the loser is common, and its margin treatment differs fundamentally between brokers: some hold no additional margin for the opposing leg because net exposure is zero, others hold full margin on both legs. The difference between the two treatments can decide whether your account survives.
Beyond margin, three facts are usually missed: an opposing position freezes the loss rather than removing it; spread and overnight costs continue on both legs, eroding equity over time; and unwinding a hedge requires two correct decisions instead of one — you have doubled the difficulty of the problem rather than solved it. In the vast majority of cases, closing the loser and reassessing is simpler and cheaper.
Common mistakes and limits you should know
- Treating margin as a loss ceiling. Margin is held collateral, not the maximum you can lose; losses follow price, not the reserved amount.
- Relying on the margin call as protection. A margin call protects the broker, not your plan; the protective tool is a stop-loss defined in advance.
- Ignoring correlated trades. Three long positions on dollar-based pairs are not diversification but one large position split up — and margin is held on each.
- Forgetting that spread and swap consume free margin, pushing margin level toward the stop-out threshold with no adverse price move at all.
- Assuming negative balance protection. Some brokers provide it and some do not; verify it in your account terms rather than assuming.
The risk principle that precedes all of the above: fix a constant risk percentage per trade and stick to it. Details in risk management in trading.
Seven questions before opening a leveraged position
There is no magic "safe margin level" that suits everyone, but these seven questions turn everything above into a practical check before you press execute:
- What is my effective leverage after this trade, not the nominal setting?
- How many pips can my account absorb at this size before a stop-out?
- Is my stop-loss distance clearly shorter than that distance?
- Is size calculated from a risk percentage, or from available margin?
- Do I hold other correlated positions sharing the same exposure?
- Will I hold through a weekend or event that may raise margin requirements?
- What will spread and overnight costs total over the expected holding period?
If the answer to question three is "no," the size is too large no matter how good the trade looks. To turn these into a fixed routine before every entry, use the pre-trade checklist.