What is forex margin?

When you open a leveraged forex trade, the broker does not usually require the full notional value of the position to be paid in cash. Instead, it requires a portion of the account as margin. The amount depends on the instrument, the position size, broker policy, and applicable rules.

That can make a large position look affordable because the margin used is small. But margin used and potential loss are different numbers. A trade with plenty of remaining margin can still have an oversized pip value and a stop loss that risks too much of the account.

Leverage describes the exposure an account may control relative to required margin. Margin is the collateral required for that exposure. Risk is the planned loss if price reaches the stop.

For example, two traders may use the same leverage and the same amount of margin. The trader using a smaller position, defined stop, and lower pip value can have far less planned risk. Read what leverage means in forex for the related concept.

As open losses reduce equity, free margin can shrink. Depending on its policy, a broker may restrict new trades, request more funds, or automatically close positions once an account reaches its margin threshold. Those thresholds vary by broker, account type, and jurisdiction.

Waiting for a margin warning means the position has already put the account under pressure. A better process defines the stop loss and position size before entry, leaving room for normal market movement and avoiding reliance on forced liquidation as the exit plan.