Margin explained: used, free margin, and margin calls

Margin isn’t the cost of a trade — it’s the deposit the broker freezes to let you hold one. Confuse the two and you’ll size positions you can’t actually carry.

Margin is collateral, not a fee

When you open a leveraged position, the broker doesn’t lend you money and charge interest on the spot. Instead it ring-fences a slice of your balance as collateral — that’s margin. It’s a security deposit against the position, returned in full the moment you close, minus whatever the trade won or lost. Nothing is “spent.”

How much gets frozen depends on leverage. At 1:100, a position needs 1% of its notional value as margin; at 1:30, it needs about 3.3%. So the same trade ties up very different amounts of cash depending on the leverage your account (or your prop firm) allows. Higher leverage frees up more of your balance — which sounds good until you realize it also lets you open positions large enough to be dangerous.

Used margin vs free margin

Your account balance splits into two live buckets the instant you have a trade open:

Used margin — the collateral currently locked up behind your open positions. Open more trades, and more of your balance moves into this bucket.
Free margin — what’s left over, available to open new positions or to absorb losses on existing ones. Free margin is roughly your equity minus used margin.

The key word is equity, not balance. Equity is your balance plus or minus the floating P&L of open trades. So free margin breathes in real time: a position moving against you drains free margin even though you haven’t closed anything and your balance hasn’t changed yet. When free margin hits zero, you can’t open anything new — and you’re getting close to the broker stepping in.

Margin level: the percentage that matters

The number brokers actually watch is margin level, the ratio of equity to used margin, expressed as a percent:

margin level = (equity ÷ used margin) × 100

A margin level of 1000% means you have ten times the collateral your open trades require — very comfortable. As trades move against you, equity falls, used margin stays roughly fixed, and the ratio drops. It’s a live fuel gauge for how much adverse movement your account can still absorb before the broker intervenes. Watch the trend of it, not just the snapshot.

Margin call and stop-out

Two thresholds sit at the bottom of that gauge, and both are set by the broker (prop-firm platforms often set their own):

Margin call — a warning level. Your margin level has dropped far enough that the broker flags you to either add funds or reduce exposure. Nothing is closed yet.
Stop-out — the hard floor. If the margin level keeps falling to the stop-out level, the broker automatically closes your positions, usually starting with the biggest loser, until the ratio recovers. You don’t get a vote.

A stop-out is a forced liquidation at the worst possible moment — the market has already moved hard against you. On a funded account it’s doubly painful, because the same drawdown that triggers a stop-out has probably already tripped the firm’s loss rules. Confirm the exact margin-call and stop-out levels with your broker or firm; they vary and change.

How margin interacts with your open risk

Here’s the trap: margin tells you whether you can open a position, not whether you should. Those are different questions.

Margin asks: do I have enough collateral to hold this size?
Risk asks: if my stop hits, how many dollars do I lose?

You can have plenty of free margin and still take a position whose stop-loss represents a reckless fraction of your account. Free margin runs out long after good risk management would have told you to stop. So size from your stop distance and dollar risk first, then confirm margin allows it — never the other way around. The position size calculator sizes from risk, and the lot size calculator converts that into a lot the platform will accept.

This is exactly where a broker-enforced limit beats willpower. Shibiki auto-journals every position and computes live edge health per strategy from real fills, so you can see whether your sizing is actually consistent — and it can push a hard risk limit down to the broker so an over-leveraged order is rejected before it ever consumes free margin. When you run several funded accounts, that limit copies across all of them at once, so one impulsive trade can’t quietly eat the margin cushion on every account you have. If you trade with a firm like E8 Markets, confirm their leverage and margin rules directly — and connect through MT5 to keep the margin math consistent across accounts.