Margin level and free margin: what triggers a margin call

Margin is the part of your money the broker sets aside to keep your open positions open. Free margin is your equity minus that margin, and margin level is equity divided by margin, times 100%. Margin level is the trigger: when it falls to your broker's margin call level you get a warning, and at its stop out level the platform starts closing your positions, the one losing most first.

Both levels are set by your broker. On UK and EU retail accounts the regulators also require a close-out when equity falls to 50% of the margin needed.

The five numbers in MT5

MT5 shows the account in five figures on the Trade tab of the Toolbox. The last two are worked out from equity and margin.

• Balance: closed trades only. An open trade's profit or loss is not in it until the trade closes.
• Equity: the balance plus the open profit or loss. This is what the account is worth right now.
• Margin: the money set aside to keep your open positions open. It is your own money, held while the trades are open, not a fee.
• Free margin: equity minus margin, the money left for new positions.
• Margin level: equity divided by margin, times 100%.

Balance and equity are the same number until a trade is open. Then the balance sits still, equity moves with the price, and every level your broker watches follows equity.

At a margin level of 1,250%, your equity is twelve and a half times your margin. At 100%, equity equals margin and free margin is zero. Two things push the level down: losses on open trades, which cut equity, and new positions, which add margin.

How the margin on a trade is worked out

Margin = lots × contract size × price ÷ leverage, in the pair's second currency: dollars for EUR/USD and for gold, which MT5 shows in your account currency. The examples use 100,000 units per forex lot and 100 ounces per gold lot; your broker's contract size is in the symbol's Specification, from a right-click on it in Market Watch.

The 1:100 and 1:500 columns are the kind of leverage offered outside UK and EU retail rules. Open a trade and its margin is added to the Margin figure, while free margin falls by that amount and by any open loss.

Margin call and stop out

A margin call is your broker's warning level for margin level: when margin level falls to it, nothing is closed yet. The stop out level is where the platform begins closing positions itself, starting with the position that is losing most, and it does not wait for your stop loss. Both levels are your broker's, so read them in its account terms or contract specifications for your account type.

For retail clients in the UK and the EU, the regulators add two rules. ESMA's product intervention measures, mirrored in the UK by the FCA, require a close-out when equity falls to 50% of the margin needed, a margin level of 50%. They also require negative balance protection: a retail client cannot lose more than the money in the account.

An account with 1:500 on gold or a major pair is outside those retail rules. Its close-out level, and whether it protects you from a negative balance, are whatever its own terms say.

A worked example: $1,000 at 1:500 on gold

Every number here is an example, with spread and commission left out. The account holds $1,000 at 1:500, the kind of leverage offered outside UK and EU retail rules, and buys 0.10 lots of gold at an example price of 4,000.00, with no stop loss.

The margin is 0.10 × 100 × 4,000.00 ÷ 500 = $80, taken as fixed at that figure for the example, so margin level starts at 1,000 ÷ 80 × 100% = 1,250%. Each $1 of gold's price is 10 pips at $0.10 a pip, and $10 on 10 ounces. Take the broker's stop out as 50%, the level the UK and EU retail rule uses.

A 50% stop out on $80 of margin closes the trade when equity reaches $40, a $960 loss on one position. That stop out is not risk management. It is the end of the account.

Your stop decides the cost, not your leverage

Give the same trade a signal's stop 300 pips away, $30 of price, at 3,970.00 in this example. It closes there for a $300 loss. At 1:100 the loss at that stop is the same $300; only the margin, $400, is different. At 1:20 this account could not open 0.10 lots at all, since the margin would be $2,000; what leverage changes follows that through.

Leverage and margin decide whether you can open a trade and when the broker closes it. The stop loss and the lot size decide what the trade costs. So size from the stop: choose the money you are willing to lose (how much to risk per trade), turn it into a lot size with the lot size calculator, and only then look at margin.

Then make one check before you enter. Take the cost of the stop off your equity and divide by the margin: in the example, 1,000 minus 300 is 700, and 700 ÷ 80 is 875%, far above the 50% line. The margin passes; the risk does not, because $300 is 30% of the account, so this size fails the first step. If the answer lands anywhere near your broker's margin call level, the trade is too big for the account; with several signals open, take all their stops off together and use the total margin.

The short version

• Margin level, equity ÷ margin × 100%, is the number your broker acts on, and equity moves with every open trade.
• Your broker's margin call and stop out levels are in its account terms. On a UK or EU retail account the close-out comes at 50% of the margin.
• Margin decides what you can open, not what you can lose.
• Size from the stop, then check the margin level you would have at the stop.
• A stop out is not a stop loss: by the time it acts, most of the account can be gone.

On Forexero signals

Every Forexero signal comes with one entry, one stop and three targets, so the cost of a full stop can be worked out before you enter, whatever your leverage. Every closed signal, stops included, is on the results page.