What is margin?

1. Initial Margin: When you open a new position (buy or sell), your broker will require you to deposit a certain amount of money into your trading account. This initial deposit is known as the initial margin.
2. Maintenance Margin: After opening a position, you need to maintain a certain minimum amount of funds in your trading account to keep the position open. This is called the maintenance margin. If your account balance falls below the maintenance margin due to losses in your trades, you may receive a margin call from your broker, requiring you to deposit additional funds to meet the maintenance margin requirement. Failure to do so can result in your positions being automatically closed (liquidated) by the broker to limit potential losses.
3. Leverage: Margin allows traders to control larger positions than they would be able to with just their own capital. It is often expressed as a ratio (e.g., 50:1, 100:1), representing the relationship between the trader’s own capital and the borrowed funds provided by the broker. High leverage can amplify both gains and losses in trading.

It’s important to understand that while margin trading can magnify profits, it also increases the level of risk. Traders should use leverage cautiously and have a risk management strategy in place, including setting stop-loss orders to limit potential losses.

Margin requirements can vary between brokers and trading platforms, so it’s crucial to familiarize yourself with your broker’s specific margin rules and policies before engaging in Forex trading.