Used margin

What is Used margin in forex and CFD trading

Used margin, also known as Initial Margin, is the portion of a trader’s account equity that is set aside and locked by the broker as collateral to cover the potential counterparty risk associated with open leveraged positions. The total amount of Used margin directly determines the current leverage consumption of the trading account; the higher the Used margin, the less Free Margin remains available for new trades. Traders must monitor their Used margin constantly because it is a key factor in calculating the Margin Level, which dictates the proximity to a Margin Call or Stop Out. This figure is displayed in real-time on the Terminal or Account Summary section of the trading platform, such as MT4. For a broader understanding of all trading concepts, visit our forex glossary.

Key facts about Used margin

• Definition: The sum of all required Initial Margin amounts for every position currently held open in the trading account.
• Calculation: Used Margin = Σ(Required Margin per Trade). The margin for one trade is typically Notional Value / Leverage, measured in the account’s base currency.
• Locked Capital: This capital is frozen and cannot be used for withdrawal or for opening additional trades unless existing positions are closed or the account Equity increases.
• Risk Relationship: Higher Used margin implies a higher current leverage exposure and a lower buffer against market movements before a Margin Call is triggered.
• Impact of Instrument: The margin requirement, and thus the Used margin, varies significantly by instrument; exotic currency pairs, cryptocurrencies, and volatile indices typically require a higher percentage.
• Platform Display: Always visible on the MetaTrader Terminal window under the label “Margin” or “Used Margin.”

How Used margin works in forex and CFD trading

The operation of Used margin is fundamental to leveraged trading, serving as a non-negotiable security deposit that enables the trader to control a larger position size than their account balance would otherwise allow.

Calculation and process follow these steps:

1. Position Entry: When a trader submits an order, the system checks the required margin based on the notional value of the trade and the account’s available leverage ratio (e.g., 1:100). Required Margin = Notional Value / Account Leverage
2. Margin Commitment: If the Free Margin is sufficient, the Required Margin amount is immediately subtracted from the Free Margin and added to the Used margin total.
3. Real-Time Collateral: The Used margin remains committed for the entire duration the position is held open, regardless of whether the position is currently in profit or loss.
4. Position Exit: When the position is closed, the collateral amount that was locked as Used margin is immediately released back into the Free Margin pool, increasing the capital available for new trades.

Example of Used margin with a real trade

A trader with a USD account wants to open two positions with a leverage ratio of 1:200.

Scenario 1: Opening 1 Standard Lot of EUR/USD

• Position size: 100,000 EUR (notional value)
• EUR/USD Price: 1.1000
• Notional Value in USD: 100,000 × 1.1000 = $110,000
• Leverage: 1:200
• Required Margin (Used Margin for this trade): $110,000 / 200 = $550

Scenario 2: Opening 3 Mini Lots of Gold (XAU/USD)

• Position size: 3 mini lots (30 ounces)
• Gold Price: $2,000 per ounce
• Notional Value in USD: 30 × $2,000 = $60,000
• Broker Margin Requirement for Gold: 0.5% (Equivalent to 1:200 leverage)
• Required Margin (Used Margin for this trade): $60,000 × 0.005 = $300

Step 3: Calculate Total Used Margin

Total Used Margin = $550 + $300 = $850

Result: The total Used margin is $850. This capital is now locked, reducing the trader’s Free Margin by $850.

How Used margin affects your cost and risk

The volume of Used margin is an absolute measure of an account’s exposure. A high Used margin limits flexibility and increases the sensitivity of the Margin Level to price changes, thus heightening the risk of forced liquidation.

Used margin compared with related concepts

Used margin vs Free margin

Used margin is the portion of capital that is actively collateralizing open trades, representing committed funds, whereas Free Margin is the remaining available capital that can be used for new trades. The relationship is Equity = Used Margin + Free Margin; they are two complementary components of the account Equity.

Used margin vs Initial margin

Used margin is the cumulative total of all Initial Margin amounts required for every open trade currently held by the account, whereas Initial Margin is the specific collateral required for a single trade. Essentially, Used Margin is the aggregate of all Initial Margin requirements.

Broker differences in Used margin across the industry

Differences in Used margin mainly stem from two factors: the maximum leverage permitted (driven by regulation) and whether the broker offers reduced margin for hedged positions.

How to verify Used margin on your trading platform

Used margin is one of the most visible metrics in the trading platform interface, specifically designed for continuous monitoring. Using MetaTrader 4 (MT4):

1. Log into Platform: Open the MT4 application and ensure you are connected to your live trading account.
2. Open Terminal Window: Open the Terminal window by navigating to View → Terminal or using the keyboard shortcut Ctrl+T.
3. Select Trade Tab: Ensure the Trade tab is selected at the bottom of the Terminal window.
4. Locate Used Margin Value: Look at the line displaying the summary of your account finances. The value labeled Margin or Used Margin is the total collateral currently locked by all open positions.
5. Check New Order Margin: Open a New Order window (F9) for any instrument and adjust the volume; the Required Margin amount shown below the order details is the amount that will be added to the Used Margin.
6. Sanity check: The value for Used Margin should increase if you open a new position and decrease if you close an existing position.