Margin trading gives you an opportunity to enter the market with a bigger amount of money than you actually have. To get additional money you use leverage.
The margin trading increases the number of funds you have. So, if you have a profitable trade, you will earn more. However, if you lose, you will lose much more than you have. And risks to meet a margin call with a stop out will rise significantly.
Margin call is a warning that a broker gives you when account equity drops to a certain level (the level is determined by the broker). What to do after the margin call? You either close the losing order or add money to your account.
Stop out is the final part of your losing trade when it will be closed because your account equity falls to the lowest allowable level.
Let’s consider some additional terms related to margin.
Required margin. A specific amount of your funds that is set aside when you open a new trade.
Used margin. It’s the margin that has already been used. A trader can’t use this amount to open new positions.
Free margin. The amount of margin that can be used to open new trades.
2020-07-24 • Updated