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Margin definition
Margin is the deposit you put up to open and hold a leveraged position. It works as collateral for the trade, not as a fee or a transaction cost.
The size of the margin depends on the position size and the leverage ratio, along with the instrument and the broker's rules. It applies across forex, commodities, indices, futures, and CFD trading, and it lets you control a position larger than the cash you deposit.
Margin is the deposit itself, not the activity or the warning that share the word. Margin trading is the method of using that deposit to take on leveraged exposure, and a margin call is the broker's demand for more funds when your equity falls below the required level.
Margin Example
You want to open a USD 100,000 forex position at 1:100 leverage.
The required margin is:
USD 100,000 √∑ 100 = USD 1,000
You need USD 1,000 in margin to open the position, and it stays held as collateral while the trade is open.
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