Master Margin, Equity, Free Margin, Leverage, Margin Calls & Stop Out Levels Before You Trade
Margin trading is the core foundation of Forex trading.
Most beginners lose money simply because they do not understand these concepts.
This chapter explains everything in simple, professional language so your customers can trade safely—whether manually or using automation like The Easy Pip.
Margin trading allows you to control a larger position size with a smaller amount of money, using leverage provided by your broker.
Example:
If you want to open a $10,000 trade and your broker requires 1% margin, you only need $100 in your account.
You get additional “buying power” thanks to leverage.
Margin does not represent a fee or cost.
It’s simply the amount your broker locks while your trade is active.
Equity = Your balance + floating profit or minus floating loss
This is the real-time value of your trading account.
Equity = Balance + Open Trade P/L
Example:
Your balance = $1,000
Your open trades = -$100 (loss)
Your equity = $900
If your trades show +$150 profit:
Your equity = $1,150
Equity changes every second as the market moves.
Free Margin = Equity – Margin Used
It represents how much capital you have left to open new trades.
Example:
Equity = $1,000
Margin used = $300
Free Margin = $700
If Free Margin becomes too low, you cannot open new trades and risk receiving a margin call.
Used margin is the amount of money your broker locks to keep your trades open.
Example:
If each trade requires $50 margin and you open 4 trades:
Used Margin = $200
If price goes against you and equity falls, your free margin becomes smaller while used margin stays the same.
A margin call is a warning from the broker that your account does not have enough equity to maintain your open trades.
Important:
A margin call does not close your trades. It is just a notification.
Margin call happens when your equity drops too close to your used margin.
Margin Call Level = 50%
Used Margin = $200
You receive a margin call if:
Equity falls to $100 (50% of $200 used margin)
At this point, you must:
If you ignore it… the next stage is STOP OUT.
A stop out is when the broker automatically closes your trades to prevent your balance from going negative.
Stop out happens when your equity falls below a certain percentage of your used margin.
Stop Out Level = 20%
Used Margin = $200
Stop out triggers if:
Equity falls to $40 (20% of $200)
When this happens:
❌ The broker starts closing your biggest losing positions
❌ Trades close automatically
❌ You cannot stop it
❌ Your account can get wiped out
This is why risk management and stop losses are absolutely essential.
Leverage amplifies both profit and loss.
Common leverage ratios:
With 1:100 leverage:
✔ Trade large positions
✔ Maximize opportunities
✔ Low capital requirement
❌ Larger losses
❌ Margin calls
❌ Stop outs
❌ Account blowouts
Many beginners fail because they use high leverage without understanding its risks.
Margin Level (%) = (Equity / Used Margin) × 100
This tells you how safe your account is.
Margin Level (%) | Meaning |
Above 200% | Very safe, strong account |
100% – 200% | Moderate risk |
50% – 100% | High risk, margin call likely |
Below 50% | Critical, stop out possible |
Margin level is the most important number in your account.
If it drops too low → broker closes your trades automatically.
Balance = $500
Leverage = 1:500
Trader opens multiple large trades.
Used Margin = $200
Equity drops to $100
Margin Level = (100 / 200) × 100 = 50%
→ Margin Call triggered
Price moves a little more against trader.
Equity drops to $40.
Margin Level = (40 / 200) × 100 = 20%
→ STOP OUT triggered
→ Broker closes trades
→ Account drops to $10–$30
All because the trader:
Didn’t understand margin
✔ Use stop loss on every trade
✔ Do not over-leverage
✔ Trade small lot sizes
✔ Keep margin level above 300%
✔ Avoid overtrading
✔ Understand risk before entering trades
✔ Use automation responsibly
✔ Withdraw profits regularly
Margin knowledge = account protection.
Optimize performance, enhance productivity – Easy PIP makes it simple
Forex and algorithmic trading involve a high level of financial risk and may not be suitable for all investors.You may lose some or all of your invested capital; only trade with money you can afford to lose.The Easy Pip is not responsible for any profits or losses incurred while using the software.Past performance does not guarantee future results; markets can move unpredictably.
