How your margin account really works
Used margin, free margin, margin level & the stop-out
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Leverage lets a small deposit control a big position. This is the dashboard your broker watches while you hold it — and the two numbers that decide whether your account survives.
AI Mentor here. 🧠 You already know that leverage lets a small deposit control a large position. What almost nobody learns until it hurts is what the broker is looking at *while* that position is open. There are four gauges on that dashboard, and once you can read them, every story you have ever heard about a blown account suddenly makes sense.
Used margin and free margin
When you open a trade, the broker locks part of your money away as a deposit to hold it. That locked portion is your used margin (also called required margin). Everything left over is your free margin.
Free margin does two jobs, and the second one is the one that matters. It is the money available to open more trades — and it is the cushion that absorbs losses on the trades you already have. A fat free margin means the market can move against you for a while without anything dramatic happening.
Used margin = deposit locked to hold your positions. Free margin = what is left, both to trade with and to lose. Equity = balance ± your open profit or loss right now.
Margin level: the health gauge
The single most important number on the dashboard is your margin level, expressed as a percentage:
Margin level = equity ÷ used margin × 100
Because equity moves with your open trades, this gauge is alive. When trades go your way, equity rises and the level climbs. When they go against you, equity falls and the level drops. A high margin level means a healthy, well-cushioned account. A falling one means the cushion is being eaten.
The margin call and the stop-out
As losses drag equity down, the margin level falls toward two lines your broker has drawn in advance.
The first is the margin call level, often around 100%. This is a warning: add funds or close positions. You still have a say.
The second is the stop-out level, often around 50%. Here the broker stops asking. It begins auto-closing your losing positions — worst first — until the level recovers. This is not personal and it is not negotiable: it exists so your account cannot go negative and leave the broker holding the bill.
A margin call is a flashing light on the dashboard. A stop-out is the broker taking the wheel. By then the decision has already been made for you — which is why the work happens before you open the trade, not after.
Why over-leverage burns accounts
Now put it together, because this is the whole lesson in one example.
You have $1,000 and you open the biggest position the platform will allow. Almost all of your money becomes used margin. Your free margin is nearly zero — there is no cushion left. A few pips against you drops equity below what is required, the margin level craters, and the stop-out closes you out.
Nothing unusual happened to the market. A normal wiggle became a wipeout purely because there was no buffer to absorb it. That is what over-leverage actually does: it does not increase your risk of being wrong, it removes your room to be wrong temporarily.
Keep leverage modest and free margin fat. A position half the size survives twice the adverse move — and surviving the wiggle is usually the only difference between a losing trade and a lost account.
Read your dashboard before you size up. Used margin, free margin, equity, margin level — four numbers, and they will tell you the truth long before the broker has to. 🚗