What is Margin? Forex Basics

Forex Educational Video Series

What is Margin in Forex trading?

Margin is the amount of funds that the broker requires from the trader in order to cover any potential losses, since a trader is allowed to use more capital than the amount he or she initially deposited. It’s like a good faith deposit that’s represented as a percentage and directly connected to the leverage you are trading with. Another way of describing margin is that it’s the amount you need to have in your account in order to keep a position open. For example, if a trader was to deposit $20,000 in an account with 1:25 leverage, the margin set by the broker would be 4%. This means that if the trader were to buy 2 lots of EURUSD at 1.2000, he would need $9,600 (4% of $240,000 (200,000 x 1.2000)) in his account to keep his position open.

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