What Is Margin in Trading? Simple Explanation for Beginners
Margin is your money that the exchange or broker locks up as collateral when you trade with leverage. It determines how large a position you can open.
How it works
You want to open a $1000 position with 10× leverage. The exchange will lock $100 of your margin and lend you the rest. If the price moves against you, the loss is deducted from your margin. More on leverage in leverage explained simply.
| Term | What it means |
|---|---|
| Initial margin | How much you need to open a position |
| Maintenance margin | The minimum below which liquidation happens |
| Free margin | Money not tied up in positions |
| Isolated | Risk is limited to one position's collateral |
| Cross margin | The entire account balance serves as collateral |
What beginners should know
- Isolated margin is safer: a loss on one position won't take your whole account.
- Margin falling to the maintenance level leads to a margin call and a forced close.
- A stop-loss is mandatory and should trigger before that.
How margin trading works is covered in the lesson on margin and short selling.
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- Margin is collateral for leveraged trading.
- Below maintenance margin — liquidation.
- Isolated margin limits risk to a single position.
Frequently asked questions
Is margin in trading the same as margin in business?
No. In business, margin is the difference between revenue and costs. In trading, it's collateral for a leveraged position.
Do I need margin on spot?
No, on spot you pay the full amount with your own money. Margin is needed for futures and margin trading.
Which should I choose: cross or isolated?
Isolated is simpler and safer for beginners: you know in advance how much you can lose on a position.
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