What you'll learn
- Calculate margin level
- Understand what the percentage means
- Keep an account far from the broker's thresholds
The formula
Margin level equals equity divided by used margin, times 100. Equity 5,000, used margin 1,000: margin level 500 percent. It rises as positions profit and falls as they lose, and it falls as you open more positions, because used margin increases. With no positions open it is undefined and the platform shows nothing or zero.
Reading it
| Margin level | Meaning |
|---|---|
| Above 500 percent | Comfortable; ordinary moves cannot threaten the account |
| 200 to 500 percent | Watch it; a large adverse day could bring it down fast |
| 100 to 200 percent | Danger; many brokers send a margin call at 100 percent |
| Below 100 percent | Free margin is negative; no new positions |
| At the stop-out level, often 50 percent | The broker closes positions |
Why it moves so fast near the bottom
Because used margin is fixed while equity is falling, the ratio accelerates downwards. From 200 percent to 100 percent takes a loss equal to used margin; from 100 to 50 takes half that. An account at 150 percent on Friday afternoon can be stopped out by a spread widening at the Sunday open.
Keeping it high
- Keep used margin small relative to equity: low effective leverage does this automatically.
- Set stops so that losses are closed long before margin level matters.
- Do not add positions to a losing account to recover; each one lowers margin level further.
- Know your broker's margin call and stop-out levels; they are in the account specification.
Key takeaways
- Margin level is equity over used margin, as a percentage.
- Brokers warn at around 100 percent and close positions at around 50.
- The ratio falls faster the lower it gets.
- Low effective leverage keeps it high without effort.
Knowledge check
Trading forex, CFDs and other leveraged products carries a high risk of losing money. This lesson is general education, not advice. Risk disclosure.