Key takeaways
- Margin is the collateral set aside to keep a leveraged position open; it is not a fee.
- Equity equals your balance plus or minus the floating profit or loss on open positions.
- Free margin is equity minus used margin, and it is the cushion that absorbs losses.
- Margin level is equity divided by used margin, shown as a percentage.
- A margin call warns that your cushion is thin; a stop-out closes positions automatically.
01The Five Numbers on Your Account Screen
Most trading apps show a set of account figures that look similar but mean different things. Getting them straight is the foundation of margin trading.
| Term | What it means | How it is calculated |
|---|---|---|
| Balance | Cash in the account from deposits and closed trades | Changes only when trades close or funds move |
| Equity | What the account would be worth if all trades closed now | Balance + floating profit − floating loss |
| Used margin | Collateral locked to keep open positions running | Sum of margin required for each open position |
| Free margin | Equity available for new trades or to absorb losses | Equity − used margin |
| Margin level | Health indicator for the account | (Equity ÷ used margin) × 100% |
Used margin depends on the size of your positions and the leverage available for each instrument. Higher leverage means less margin per position, but it does not reduce the value of each price move.
02A Step-by-Step Margin Example
This is a hypothetical example with invented figures. Margin rates, margin call and stop-out levels differ between providers and regions; check the actual values that apply to your account.
Step 1: open the trade
You have a balance of $1,000 and open a gold CFD position that requires $200 of margin. With no price change yet:
- Equity = $1,000
- Used margin = $200
- Free margin = $800
- Margin level = 1,000 ÷ 200 = 500%
Step 2: the market moves against you
Gold falls and your floating loss reaches $600.
- Equity = $1,000 − $600 = $400
- Free margin = $400 − $200 = $200
- Margin level = 400 ÷ 200 = 200%
Step 3: the loss deepens
The floating loss grows to $800.
- Equity = $200
- Free margin = $0
- Margin level = 100%
At this point you have no free margin left to open new trades, and many platforms would issue a margin call warning.
03Margin Call vs Stop-Out
Margin call
A margin call is a warning that your margin level has fallen to a threshold set by the provider. It is a signal that your account cannot absorb much more loss. Depending on the platform, you may be unable to open new positions until the level recovers. You can respond by closing or reducing positions, or by adding funds, though adding money to a losing trade should be a deliberate decision, not a reflex.
Stop-out
If losses continue and the margin level falls to a lower threshold, the platform begins closing positions automatically, usually starting with the largest losing trade, to stop the account from falling further. Continuing the hypothetical example above, if the stop-out level were 50%, positions would start closing when equity fell to $100.
A stop-out is not a safety net you should rely on. In fast markets, positions can close at worse prices than the stop-out level, and gaps can cause losses beyond your equity. A stop loss on each trade, explained in our stop loss and take profit guide, is a far better first line of defence.
Learn to read equity, free margin and margin level with virtual funds first: download QTFX Markets on Google Play and practise on a demo account.
Get it on Google Play04Why Accounts Hit Margin Calls
Most margin trading problems trace back to a handful of avoidable habits:
- Oversized positions: using most of your free margin on one trade leaves almost no room for normal fluctuations.
- No stop loss: letting losses run until the platform intervenes.
- Correlated trades: several positions that all depend on the US dollar can lose at the same time.
- News spikes: sharp moves around events on the economic calendar can drain equity in minutes.
- Ignoring holding costs: overnight financing gradually reduces equity on long-held positions.
CFDs are complex, leveraged products and carry a high risk of rapid losses. Losses can exceed what you expect, so only trade money you can afford to lose, and check that CFD trading is permitted in your country.
05Keeping a Healthy Buffer in Margin Trading
The goal is to make margin calls something you read about rather than experience. Practical habits:
- Keep used margin modest. Many cautious traders aim to use only a small share of equity as margin, leaving the rest as a buffer.
- Set a stop on every trade so a single position cannot drain the account.
- Size from risk: decide the maximum loss first, then calculate the position. Our margin and position size calculator helps here.
- Check total exposure before adding a new trade, not just the margin for the new trade alone.
- Reduce size before big events or when volatility rises.
A written plan, as outlined in our risk management guide, turns these habits into rules you follow even when emotions run high.
06Monitoring Margin in the App
In QTFX Markets, your open, pending and closed positions are listed with real-time profit and loss, so you can see how each trade affects your account as prices move. Get into the habit of checking equity and margin figures before opening a new position and after any large market move. A demo account is a safe place to practise margin trading and watch margin level rise and fall, and even to see what happens as it approaches a margin call, without losing real money.
Questions readers ask
What is margin in trading?
Margin is the amount of money set aside from your account as collateral to open and maintain a leveraged position. It is not a fee or a cost; it is returned to free margin when the position closes, adjusted for any profit or loss. The margin required depends on position size and the leverage that applies to the instrument.
What triggers a margin call?
A margin call is triggered when your margin level, calculated as equity divided by used margin, falls to a threshold set by your provider. This usually happens because open positions have built up floating losses that reduce equity. The exact threshold varies by platform and region, so check the level that applies to your account.
What is the difference between free margin and equity?
Equity is your account balance plus or minus any floating profit or loss on open trades, so it shows what your account is worth right now. Free margin is equity minus the margin locked by open positions. Free margin is the amount available to open new trades or to absorb further losses before a margin call.
How can I avoid a stop-out?
Keep position sizes small relative to your account, use a stop loss on every trade and avoid stacking several correlated positions. Check your margin level regularly, particularly before major news events. Reducing exposure early when a trade moves against you is usually better than waiting for the platform to close positions at an unfavourable price.
