Educational content. This article defines what margin is and how it works across CFD instruments. It does not constitute investment advice or a trading recommendation. CFD trading carries significant risk of loss and may not be suitable for all investors.
Margin is one of the most misunderstood numbers on a trading account. Many beginners treat it as a charge deducted from their balance, when it is actually a refundable security deposit set aside against an open position. The sections below define margin as collateral, walk through used margin, free margin, equity, and margin level, separate the margin call from the stop-out, and finish with worked examples using real VantoTrade contract sizes.
What Is Margin in Trading?
Margin in trading is the portion of your own capital that a broker sets aside as collateral to open and maintain a leveraged position. It is not a fee or a cost; it is a security deposit, returned to your free balance when you close the trade. Leverage is what makes margin necessary: because a CFD lets you control a position larger than your deposit, the broker locks part of your capital as a good-faith guarantee against potential losses on that position.
Margin is parked, not spent. Opening a position moves the required margin from "free" to "used", and closing it moves the same amount straight back to free. The only amounts that genuinely leave the account are the spread, any swap, and the realised profit or loss.
Margin vs. Leverage: How They Relate but Differ
Margin and leverage are two views of the same relationship: leverage is the ratio, and margin is the deposit that ratio implies. Leverage of 1:100 means a position can be 100 times the collateral, which is the same as a margin rate of 1 percent (1 divided by 100). Leverage of 1:30 corresponds to a margin rate of about 3.33 percent.
Leverage works in both directions. A higher ratio means a smaller margin deposit controls a larger notional position, which amplifies both gains and losses on the same price move and consumes free margin faster when the market moves against the position. The ratio itself does not change the probability of any outcome; it scales the monetary result of whatever the market does.
The relationship in one line:
Margin rate = 1 ÷ leverage ratio
Required (Used) Margin: The Capital Locked to Open a Position
Required margin (also called used margin) is the amount of capital locked as collateral for the positions you currently have open. The moment a position opens, this amount is reclassified from free margin to used margin and stays locked for as long as the position is held.
With several positions open, used margin is the sum of the individual requirements. Each instrument can carry its own margin rate, so a forex position and a gold position of similar notional value may lock different amounts; the exact rate per instrument is shown in the trading calculator and the MT5 symbol specification.
How to Calculate Required Margin (Notional Value x Margin Rate)
Required margin equals the position's notional value multiplied by the margin rate. Notional value is the full market value of the position, calculated as lots multiplied by contract size multiplied by current price.
The two-step formula:
Notional value = lots × contract size × price
Required margin = notional value × margin rate
Contract size is the bridge between lot size and notional value, which is why lot selection drives the margin requirement. For the standard, mini, and micro lot hierarchy and contract sizes across asset classes, see what is a lot in trading. The examples here use an illustrative margin rate of 1 percent (1:100 leverage) to show the arithmetic; actual rates vary by instrument, account type, and regulatory tier, so the live figure should be read from the trading calculator.
Free Margin and Equity: The Buffer That Keeps Trades Open
Free margin is the capital still available to open new positions or to absorb floating losses on existing ones, and equity is the account's real-time value including open profit or loss. The two formulas:
Equity = balance ± floating profit/loss on open positions
Free margin = equity − used margin
Balance is the settled cash figure, fixed until a position is closed or a swap is charged; equity moves tick by tick as open positions gain or lose. Floating profit lifts equity above balance and grows free margin, while floating loss pulls equity below balance and shrinks free margin. Free margin is the buffer between the current account state and a margin call.
What Is Margin Level and How Is It Calculated?
Margin level is the ratio of equity to used margin, expressed as a percentage, and it is the headline number a platform uses to judge account health. The formula, formatted on its own line:
Margin Level = (Equity ÷ Used Margin) × 100%
A margin level of 1000 percent means equity is ten times the locked collateral, which is a comfortable buffer. A margin level falling toward 100 percent means equity has dropped to roughly the size of the used margin, signalling that floating losses have eaten most of the free margin. The four core terms fit together as follows:
| Term | Definition | Formula |
|---|---|---|
| Used (required) margin | Collateral locked for open positions | Notional × margin rate |
| Equity | Real-time account value | Balance ± floating P/L |
| Free margin | Capital available for new trades or losses | Equity − used margin |
| Margin level | Account-health ratio | (Equity ÷ used margin) × 100% |
When there are no open positions, used margin is zero and margin level is undefined (there is nothing to measure against), which is why platforms display a margin level only while positions are open.
What Is a Margin Call?
A margin call is a notification issued when margin level falls to a set threshold, warning that the account no longer holds a comfortable buffer above its used margin. The threshold is broker-defined and is commonly set around 100 percent, meaning equity has fallen to roughly the level of the locked collateral.
A margin call is a warning, not an automatic action. The positions remain open, and the account can recover on its own if the market moves back in the position's favour and floating losses narrow. The term originates from brokers historically phoning clients to "call" for more funds; on modern platforms it is an on-screen and email alert.
What Is a Stop-Out (Forced Liquidation)?
A stop-out is the automatic, broker-initiated closing of open positions when margin level falls to a lower threshold than the margin call, and it is not optional. The stop-out level is broker-defined and commonly sits in the 30 to 50 percent range. When margin level reaches it, the platform begins closing positions automatically, typically starting with the largest floating loss, until margin level is restored above the threshold.
The stop-out enforces the limit of the collateral: once floating losses have consumed nearly all equity relative to used margin, the system liquidates rather than letting the balance fall below zero. The exact threshold for any account is broker-set and shown in the account or platform documentation, so it should be read there rather than assumed from the typical range.
Margin vs. Spread vs. Swap: Separating the Cost Concepts
Margin, spread, and swap are three separate concepts, and only two of them are actual costs. This distinction is the single most common source of beginner confusion, so it is worth stating plainly.
| Concept | What it is | Cost or collateral? |
|---|---|---|
| Margin | Capital locked as a refundable deposit | Collateral, returned on close |
| Spread | Difference between bid and ask price | Cost, paid at entry |
| Swap | Overnight financing on a held position | Cost (or credit), applied daily |
Margin is returned in full when the position closes and never leaves the account as an expense. The spread is the gap between the buy and sell price, effectively paid the moment a position opens. Swap is the financing charged or credited for holding a leveraged position overnight. A single position can therefore tie up margin (collateral) while separately incurring spread (entry cost) and swap (carrying cost), and keeping the three apart is essential to reading an account statement correctly.
How to Avoid a Margin Call: Practical Risk Management
A margin call is avoided by keeping margin level well above the broker's threshold, which is a function of how much collateral is locked relative to equity. The mechanics that influence margin level are straightforward to describe:
- Position size relative to capital. The larger the notional value opened, the more margin is locked and the lower the starting margin level. Smaller positions lock less collateral and leave a larger free-margin buffer.
- Floating losses. Margin level falls as floating losses grow, because equity falls while used margin stays fixed. A predefined stop-loss caps how far floating loss (and therefore margin-level erosion) can run on a position before it closes.
- Free margin. Free margin is the buffer absorbing floating losses before they reach the margin-call threshold; a larger free-margin balance tolerates a larger adverse move.
- Number of simultaneous positions. Used margin is the sum across all open positions, so holding many positions at once locks more total collateral and lowers the combined margin level.
These are descriptions of how the numbers move, not instructions on how to trade. The trading calculator shows the margin a given position will lock before it is opened, and the commodities trading pillar covers contract sizes and position mechanics across the catalogue.
Worked Example: Margin on 1 Lot EUR/USD and 1 Lot XAU/USD
The following examples apply the formula notional value times margin rate to real VantoTrade contract sizes, using an illustrative 1 percent margin rate (1:100 leverage). Prices are taken from a weekend snapshot captured on 30 May 2026, when markets were closed; weekend prices are indicative and spreads are wider than during active trading. Used margin itself is based on price and contract size, not the spread.
Example 1: 1 standard lot EUR/USD
- Contract size: 100,000 units
- Indicative price: about 1.16547
- Notional value: 1 × 100,000 × 1.16547 = about USD 116,547
- Required margin at 1 percent: about USD 1,165
Example 2: 1 standard lot XAU/USD (gold)
- Contract size: 100 troy ounces
- Indicative price: about USD 4,537.87 per ounce
- Notional value: 1 × 100 × 4,537.87 = about USD 453,787
- Required margin at 1 percent: about USD 4,538
Gold's high price per ounce gives one standard lot a far larger notional value than one standard EUR/USD lot, so it locks far more margin at the same margin rate; lot size and contract size together determine how much collateral a position consumes. The spread is a separate matter: on this weekend snapshot the EUR/USD spread was about 9.7 pips and the gold spread about USD 0.96, both wider than during the liquid London and New York sessions, when higher liquidity tends to compress spreads. That spread is the entry cost, while the margin figures above are refundable collateral, unaffected by how wide the spread happens to be.
Frequently Asked Questions
Is margin a fee or is it my own money?
Margin is your own money, held as collateral rather than charged as a fee. The required margin is reclassified from free margin to used margin when a position opens and returns to free margin in full when the position closes. The amounts that actually leave the account are the spread, any swap, and the realised profit or loss, not the margin itself.
What is the difference between margin and leverage?
Leverage is the ratio between position size and the deposit backing it, while margin is the deposit that ratio requires. They are linked by margin rate = 1 divided by leverage ratio, so 1:100 leverage equals a 1 percent margin rate. A higher leverage ratio means a smaller margin deposit controls a larger position, which amplifies both gains and losses on the same price move.
How do you calculate the required margin for a trade?
Required margin equals notional value multiplied by the margin rate, where notional value equals lots multiplied by contract size multiplied by price. For one standard EUR/USD lot near 1.16547 (notional about USD 116,547) at a 1 percent margin rate, required margin is about USD 1,165.
What is the difference between used margin, free margin, and equity?
Used margin is the collateral locked for open positions. Equity is the real-time account value, equal to balance plus or minus floating profit or loss. Free margin is equity minus used margin, the capital still available to open trades or absorb losses.
What is a good margin level percentage?
A higher margin level indicates a larger buffer above the locked collateral; a level of 1000 percent means equity is ten times the used margin. Margin level falls as floating losses grow and approaches the margin-call threshold (often around 100 percent) as the buffer erodes. What counts as comfortable depends on the broker's thresholds and the trader's risk approach; the metric is mechanical, not a target to be optimised.
What happens during a margin call versus a stop-out?
A margin call is a warning issued when margin level falls toward a set threshold (often around 100 percent), and positions stay open. A stop-out is the automatic, non-optional forced closing of positions at a lower threshold (commonly 30 to 50 percent), usually starting with the largest floating loss.
What happens if you can't meet a margin call?
If margin level keeps falling after a margin call and reaches the stop-out threshold, the platform automatically closes positions to restore margin level above that threshold. The stop-out is a system-enforced mechanism that prevents the balance from falling below zero, and adding funds or reducing position size beforehand raises margin level back up.
How can you avoid a margin call?
Margin level stays above the margin-call threshold when used margin is small relative to equity. The mechanical levers are position size (smaller positions lock less collateral), floating losses (capped by a stop-loss), the free-margin buffer (a larger buffer tolerates larger adverse moves), and the number of simultaneous positions (each adds to total used margin). These describe how the numbers move, not how to trade.
Key Takeaways
- Margin is refundable collateral, not a fee; it returns to free margin when the position closes.
- Required margin = notional value × margin rate, and notional value = lots × contract size × price.
- Free margin = equity − used margin, and equity = balance ± floating profit or loss.
- Margin Level = (Equity ÷ used margin) × 100 percent, falling as floating losses grow.
- A margin call is a warning (often near 100 percent); a stop-out is automatic forced liquidation (commonly 30 to 50 percent).
Apply Margin Calculations in Your Trading
The VantoTrade trading calculator shows the required margin, contract size, and live spread for every available instrument, so the collateral a position will lock can be checked against the actual product before opening it. For the units that feed the margin formula, see what is a lot in trading; for the cost concepts that sit alongside margin, see the spread in trading and swap in trading. For a higher-level view of CFD mechanics, the commodities trading pillar covers contract sizes and position mechanics across the catalogue.
Risk warning. Trading securities, futures, options, and contracts for differences are complex financial instruments that require knowledge and understanding. Prices can fluctuate significantly and securities may become valueless. Investors may incur losses exceeding the potential for profits. Trading on margin can result in losses greater than the amount initially deposited. Past performance is not necessarily a guide to future performance. The information in this article is for educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any financial instrument. Consider whether CFD trading is appropriate for your circumstances and seek independent advice if necessary.
