margin - definition

Margin is the amount of capital a trader must deposit with their broker to open and maintain a leveraged position in the forex market. It acts as a security deposit, not a cost or fee, that ensures the broker is protected against potential losses. Margin is only required when trading with leverage and does not apply to fully funded positions.

Required Margin = (Lot Size × Contract Size) / Leverage

Where:

• Lot Size = number of lots traded (e.g., 1 standard lot)
• Contract Size = 100,000 units of base currency (standard forex convention)
• Leverage = the leverage ratio offered by the broker (e.g., 30:1)

An Australian trader opens a 1 standard lot position on AUD/USD using 30:1 leverage. The contract size is 100,000 AUD. Required Margin = (1 × 100,000) / 30 = 3,333.33 AUD. The broker holds 3,333.33 AUD from the trader's account balance as margin while the position remains open.

• JPY pairs: When trading JPY pairs (e.g., USD/JPY), the required margin is calculated in the quote currency (JPY), then converted to your account's base currency at the current exchange rate.
• ASIC regulation: Under Australian Securities and Investments Commission (ASIC) rules, retail traders are limited to a maximum leverage of 30:1 for major forex pairs, which directly caps the minimum margin requirement.
• Mini and micro lots: Contract size varies by lot type — 10,000 units for mini lots and 1,000 units for micro lots — which proportionally reduces the required margin.

• leverage
• free-margin
• margin-call
• equity