Margin is the amount of money needed to open a leveraged trading position.
When trading forex, you are only required to put up a small amount of capital to open and maintain a new position.
This capital is known as the margin.
It is the difference between the full value of your position and the funds being lent to you by a broker.
Margin can be thought of as a good faith deposit or collateral that’s needed to open a position and keep it open.
In forex trading, there are two types of margin:
- A deposit or initial margin that’s needed to open the position
- A maintenance margin that’s needed to keep the position open.
Once you have opened your position, you might need to add more cash if your trade starts to incur a loss and your deposit margin is no longer enough to keep the position open.
If this happens, your broker will place you on margin call, and you’ll be required to deposit more cash in your account
This additional capital is known as the maintenance margin.
Do you feel overwhelmed by all this margin jargon? Check out our lessons on margin in our Margin 101 course that breaks it all done nice and gently for you.