Margin in forex trading is the collateral your broker sets aside to keep a position open. When the market moves against you, the ratio between your remaining equity and that reserved collateral decides how much room you have left. Two thresholds govern that room: the margin call and the stop-out (also called margin close-out). This explainer defines both, shows the one formula that connects them, and works through an illustrative example of what leverage does — and does not — change.

What margin actually is

In finance, margin is collateral a trader deposits with a broker or exchange to cover the credit risk the trader poses. In leveraged forex and CFD trading, the broker does not lend you the full position value; it reserves a fraction of the notional as "used margin" and lets you keep trading with the rest, the "free margin". A 1:30 leverage requirement on a $100,000 EUR/USD position means $3,333 of your account is locked as collateral; at 1:500, only $200 is. The position's exposure is identical in both cases — only the reserved collateral differs.

Margin level: one formula to remember

Brokers express your buffer as a margin level:

margin level = (equity ÷ used margin) × 100%

Equity here is your balance plus or minus the floating profit or loss on open positions, and used margin is the collateral currently reserved. A margin level of 100% means your equity exactly equals the collateral held. Above 100%, you have free margin; below 100%, your floating losses have eaten into the reserved collateral itself.

Margin call: a warning, not an automatic trade

A margin call is a notification that your account is running low on buffer. Definitions vary by broker: some alert you when equity falls to a fixed share of the margin requirement, others when margin level drops below a stated percentage (commonly somewhere between 100% and 200%). Crucially, a margin call does not itself close anything. It asks you to either deposit more funds, reduce your exposure, or accept that the next threshold is the stop-out. Because the trigger level is broker-specific, read the exact number in your broker's account terms before trading — not after the alert arrives.

Stop-out: the automatic close-out

The stop-out is the level at which the broker liquidates your positions — partially or fully — automatically. The logic is simple: your equity has fallen so far that the collateral no longer plausibly covers the risk you pose, and the broker closes positions to prevent the account balance from going negative.

Regulators sometimes set this explicitly. In the UK, the FCA's COBS 22.5.13R requires that a retail client's net equity not fall below 50% of the margin requirement for open restricted speculative CFD positions; once it does, the firm must close the position(s) as soon as market conditions allow. The same rulebook (COBS 22.5.11R) sets minimum initial margin at 3.33% of exposure for major forex pairs and 5% for minor pairs and gold — the foundation of the 1:30 retail cap for major pairs. Brokers outside any single jurisdiction may set different stop-out percentages, so treat the FCA figures as one concrete example, not a universal standard.

An illustrative example: what leverage changes

The following numbers are a labeled illustration, not a broker observation. Setup: a $5,000 account, one standard-lot EUR/USD position ($100,000 notional, roughly $10 per pip), and a stop-out at the FCA-style 50%-of-margin level. Arithmetic checked with Python:

• At 1:30 leverage: used margin $3,333, free margin $1,667, margin level 150% at opening. The equity floor is $1,667, so the account tolerates about $3,333 of floating loss — roughly 333 pips.

• At 1:100: used margin $1,000, margin level 500%. Equity floor $500; tolerable loss about $4,500 — roughly 450 pips.

• At 1:500: used margin $200, margin level 2,500%. Equity floor $100; tolerable loss about $4,900 — roughly 490 pips.

Notice what actually happened. Higher leverage reduced the reserved collateral, so more of the account stayed free — but because the position size was fixed at one lot, the distance to stop-out changed only modestly (333 pips vs 490 pips). With a comfortably funded account, leverage is not the main risk driver; position size is. The same one-lot position with a $1,000 account would sit at a 30% margin level at 1:30 from the first tick — meaning the account cannot even open the position, or sits one small move from forced liquidation. High leverage does not make a position safer; it makes it easier to open positions your account cannot absorb.

Two practical caveats

First, stop-outs are not executed at a precise price. In fast markets or over gaps — for instance across a weekend — prices can jump through your stop-out level, and the close-out happens at the next available price. The realized loss can exceed the neat arithmetic. Second, a margin call and a stop-out protect the broker's exposure first and your account second: automatic liquidation typically closes the position(s) the broker's system selects, which may not match what you would have chosen to close yourself.

What to check before trading

Before opening leveraged positions, find three numbers in your broker's terms: the margin-call trigger (if any), the stop-out level, and the margin requirement for the specific instruments you trade. All three can vary by instrument, account type and jurisdiction. Also check whether the margin requirement rises around weekends or major events — some brokers widen it, which can push an otherwise comfortable margin level toward the close-out threshold without any price movement. None of these checks predicts profitability; they tell you how close your account sits to automatic liquidation at any moment, which is the risk that matters most when a position is open.