Margin and Free Margin

Margin Is a Hold, Not a Cost

When you open a leveraged position, the broker sets aside part of your balance as margin. Nobody took it. It is your money, held for as long as the position stays open, and released in full the moment you close it.

How much is held comes straight from leverage: position value divided by the leverage ratio.

• One lot of gold at $2,600 is a $260,000 position. At 1:30 the margin is about $8,670.
• The same lot at 1:500 holds about $520.
• 0.10 lots of EUR/USD - a $10,000 position - holds about $333 at 1:30.

Nothing in those numbers changes your profit or loss. They change only how much of your balance is unavailable while the trade runs.

The Four Numbers on Your Platform

MT4 and MT5 show four figures at the bottom of the terminal, and most beginners watch the wrong one.

• Balance - the account after closed trades. It does not move while a position is open.
• Equity - balance plus or minus the floating profit of open trades. This is what your account is actually worth right now.
• Margin - the total held for open positions.
• Free margin - equity minus margin. What is left to absorb further losing movement.

The mistake is watching balance. Balance can read $5,000 while equity reads $1,200 because a losing position is open. Equity is the truth; balance is history.

Margin Level - the Number That Ends Accounts

Margin level is equity divided by used margin, as a percentage. It is the single figure that decides whether you are still in control of your own trades.

Equity $5,000 against $1,000 of used margin gives 500%. Comfortable. The trade loses $3,000, equity falls to $2,000, and the level is 200%. Nothing on the chart changed shape - the number moved because equity fell.

• Around 100% most brokers issue a margin call - a warning, and you can no longer open anything new.
• Around 50% (some brokers 20% or 30%) the stop-out begins: the platform closes your positions automatically, largest loss first, until the level recovers.
• A stop-out is not a request. It happens without asking, at whatever price the market is showing at that second.

This is where accounts actually die - not on a stop-loss, but on a stop-out where the broker chose the exit instead of the trader.

Why It Falls When Everything Looks Fine

Every open position holds margin. Open four trades and free margin has already shrunk fourfold before a single one moves against you.

Now add correlation. Gold, silver and the Australian dollar frequently move together. Three positions on them are not three independent risks - it is one bet in three places, and when it goes wrong all three drain equity at once while all three hold margin at once.

That is the mechanism by which a trader who thought each trade risked 1% discovers the account is 30% down.

The Practical Rule

• Watch equity and margin level, not balance.
• Keep used margin under roughly 20% of equity, so an ordinary move never approaches a stop-out.
• Count correlated positions as one, both for risk and for margin.
• If margin level is near 200% and falling, reduce size yourself. Below that the decision stops being yours.

A stop-loss protects the trade. Margin level protects the account. They are not the same protection, and the second one is the one nobody checks until it is too late.