Margin is a certain amount of collateral a trader places with a broker when he wants to trade with borrowed funds. This is done with a margin account, and it lets you to trade with leverage, increasing your buying power and multiplying your potential profit.

Of course, trading on leverage increases both the potential profit and potential loss. Generally, the margin requirements are low, say 3% minimum depending on the instrument, and to open a position you’re required to set aside a certain amount called “initial margin” that varies on different securities.

Margin Explained

If you don’t close a position at the end of the trading day, then you need to be above a certain threshold called “maintenance margin”, which is a minimum amount of equity in your margin account.

The equity amount comprises also your current trading position, so if your position increased in your favour, you may very well be above the limit set by the broker, but if your position loses a lot and the sum of your account value and the position is below the maintenance margin, then you will get the infamous “margin call”.

The margin call is your broker requiring depositing more in your account to satisfy the limits or your position will be automatically force closed.