Margin

When you trade on margin, you are essentially borrowing the difference between the full value of a position and the deposit you provide. That deposit — the margin — is held by the broker or exchange as collateral. It is not a fee; it is a portion of your own funds set aside to cover potential losses. You can find margin requirements listed on most financial markets platforms alongside the instrument's price.

Margin is usually expressed as a percentage of the total position size. Suppose a futures contract covers oil worth $8,000 and the exchange sets a 10% margin requirement — a trader would need to deposit $800 to hold that contract. This is called the initial margin. A lower threshold, the maintenance margin, is the minimum balance allowed before action is required.

A margin call happens when losses shrink the account balance below the maintenance margin level. The broker notifies the trader to deposit additional funds immediately or have the position reduced. Understanding margin is inseparable from understanding leverage, because margin is the mechanism through which leverage is created. Confusing margin with a trading fee is one of the most common beginner misunderstandings.