How forex margin is calculated
Margin is the deposit a broker holds while a leveraged position is open. It is not a fee and not the most you can lose. It is the position’s value divided by the leverage.
position value = lots × contract size × base-currency price in account currency
required margin = position value ÷ leverage
margin level = equity ÷ used margin × 100%
A worked example
With the figures loaded above you hold a USD account with $10,000 of equity and buy 1 standard lot of EUR/USD at 1.0850, at 30:1.
- Position value is 100,000 × 1.0850 = $108,500.
- Required margin is $108,500 ÷ 30 = $3,616.67.
- Margin level is $10,000 ÷ $3,616.67 = 276%, leaving $6,383.33 of free margin.
- The account could open at most 2.76 lots before margin ran out, a position worth about $300,000.
- A 20-pip stop at $10 a pip loses $200, 2% of equity.
Now switch the leverage to 50:1. The margin falls to $2,170 and you could open far more. The loss at the stop is still exactly $200. Leverage changes how much you can trade, not how much a given trade risks. Risk comes from the size and the stop, which is why the position size calculator starts from the stop and never asks for leverage.
Regulatory leverage caps for retail traders
- UK, EU and Australia cap retail leverage at 30:1 on major currency pairs, 20:1 on minor pairs, gold and major indices, 10:1 on other commodities, and lower still on shares and crypto.
- United States limits retail forex to 50:1 on majors and 20:1 on other pairs.
- Professional clients and offshore brokers can offer much more. More leverage does not make a position safer; it only lets a smaller deposit carry it.
Margin calls and stop-outs
As a position loses money, equity falls and so does the margin level. Brokers usually warn at one level (often 100%) and start closing positions at a lower one (often 50% in the jurisdictions above). Those levels vary by broker, so check yours. A stop-out is the broker protecting itself, not you, and it can close a position at the worst point of a move.
To check a pip value for a cross or a JPY pair, use the pip value calculator. Lot sizes are explained in the forex lot size guide.