Direct answer
Required margin is the amount of account equity that a provider must reserve for an open forex position so that the position can remain active. Related concepts often get mixed together because they share the word “margin,” but they answer different questions:
- Leverage answers how much position size (exposure) you can control relative to equity.
- Required margin answers how much equity must be set aside now to support that exposure.
- Free margin answers how much equity is still available for new positions or buffers after reserving required margin.
- Margin call (and related actions like forced close) answers what happens when equity falls too low relative to required margin.
If you can explain required margin as “reserved equity needed to keep a position open,” you can usually differentiate it from leverage (capacity), free margin (availability), and margin calls (risk response).
Mechanism and definitions
Required margin (the canonical “reserved funds” concept)
When you open a forex position, the provider may require you to post collateral. That collateral is represented in your account as required margin: the portion of your equity that is earmarked to support the open trade’s exposure.
A practical way to think about it is accounting rather than prediction: required margin does not claim your trade will profit or lose. It describes a rule-based reservation that depends on contract terms and the provider’s margin methodology.
Leverage (the “exposure capacity” concept)
Leverage is a ratio that connects account equity to the size of positions you can take. Higher leverage generally allows larger exposure for the same equity, but it does not remove margin requirements. Instead, it changes how much exposure you can attempt, which then influences the required margin for that exposure.
So leverage is about what you can control; required margin is about what you must reserve to keep the position open.
Free margin (the “remaining usable funds” concept)
Free margin is typically the difference between your account equity and the required margin tied to open positions. In other words, free margin answers: after the provider reserves what it needs for existing trades, how much equity is left that can be used to:
- open additional positions, or
- act as a buffer against adverse price moves.
Because equity moves with market prices (and may also be affected by costs, interest-like components, or spreads), free margin typically changes over time.
Margin level and margin call (the “risk threshold response” concept)
Providers often monitor your margin level (a ratio involving equity and used/required margin). When equity declines such that the margin level drops below an internal threshold, the provider may issue a margin call or take further action such as restricting new trades or forcing reductions/closures.
Key point: a margin call is not the same thing as required margin. Required margin is an input/rule for opening and maintaining positions. A margin call is a potential consequence when the balance between equity and required/used margin becomes unfavorable.
Bounded comparison with a verification-oriented example
Assume the following simplified setup for illustration (these assumptions are intentionally generic because exact formulas vary by provider and instrument):
- You want to open a position with a notional exposure that the provider’s margin formula links to a required margin amount.
- Your account has an equity value available at the moment you open the trade.
- Price moves change your equity over time.
Option A: Focus on required margin
If you open a larger position, the exposure increases. Under typical margin logic, the required margin rises with that exposure. Even if leverage is high, required margin still represents reserved equity.
If you close the position, required margin for that position is typically released, which can increase free margin.
Option B: Focus on free margin
Free margin depends on both required margin and equity. If price moves against you, equity may fall. Even if required margin stays the same immediately, the difference between equity and required margin (free margin) declines.
That means free margin is often the most intuitive “how close am I to trouble?” concept, while required margin is the reserved baseline.
Connecting the concepts
You can treat this as a chain of roles:
- Leverage influences how much exposure you can choose.
- Your chosen exposure implies a required margin reservation.
- Your equity minus required margin becomes free margin.
- If equity falls far enough relative to required/used margin, you may face a margin call / forced action.
Material limitation: real provider calculations can be more complex than this simplified picture. Examples include differences in contract specifications, whether margins are calculated per position or in netting terms, and whether additional buffers apply.
Limitations and risks
1) Provider rules can change the numbers
Required margin, margin level thresholds, and margin call behavior are typically determined by the provider’s risk framework. Even with the same account equity and exposure, two providers can produce different required margin values or different thresholds.
2) Market moves affect equity continuously
Your equity can change as prices move. Because equity feeds into free margin and margin level, adverse movement can reduce available buffer quickly—especially when positions are large relative to account equity.
3) Costs and execution details can affect equity
Equity may reflect more than pure price direction. Costs can include commissions and other charges, and execution-related effects can change realized and unrealized figures. These factors can alter when thresholds are reached.
4) Failure mode: reserved funds aren’t “extra cash”
A common misunderstanding is treating required margin as money you can freely spend. It is reserved; if price moves against you, you cannot simply withdraw it like free margin. The failure mode is operational: you may open positions expecting availability, but free margin declines and margin protection actions may follow.
Verification and next question
To verify the facts you can rely on independently, focus on provider documentation and account-specific definitions:
- Look up how your provider defines required margin (wording varies).
- Find the provider’s explanation of free margin and used/required margin.
- Check what the provider describes as margin level, margin call, and any forced close/restriction rules.
Next question you can ask yourself: *For my specific account and instrument, which formula and which thresholds determine required margin and margin call behavior?