Understanding Margin in Trading: Initial Margin and Maintenance Guarantee

What is the Initial Margin

When you want to open a trading position, your broker will ask you to deposit a certain amount of money as “margin.” This is what is called the initial margin. It is important to understand that this money is not a trading fee but a security deposit that the broker holds from your account balance to ensure safety and to guarantee that you can cover potential losses.

How Margin Works in Trading Context

When you control a trading position of $100,000, your account might only have $1,000. This demonstrates the power of leverage. The $1,000 is your initial margin. It is “locked” or held aside and not available for use while you keep that position open. When you close the trade, this amount is released back into your account for further trading.

Calculating the Initial Margin

The calculation is quite straightforward:

Margin = Contract Value × Margin Ratio (%)

Suppose you open with 200:1 leverage, which means a margin ratio of 0.5%. If you open a mini lot with a contract value of $10,000, you do not need to deposit the full amount. You only need to specify the initial margin as $50 (calculated from $10,000 × 0.5% = $50)

Maintenance Margin: Another Type of Security Deposit

The maintenance margin, often called “free margin,” is the minimum amount that must remain in your account to keep your trade active. This is not an additional payment but a system requirement to prevent risk.

Your broker typically requires your account balance to be equal to or higher than 50% of the active initial margin. If you start with an initial margin of $1,000, you must keep at least ( in your account. Otherwise, the broker has the right to close your position immediately.

Maintenance Margin Calculation Formula

**Maintenance Margin = Contract Value × Maintenance Margin Ratio )%$500 **

Where:

Maintenance Margin Ratio (%) = Margin Ratio (%) × 50%

For example: If your initial margin is $1,000, the maintenance margin must be (. If your trade starts losing money, the initial margin may not be enough to continue trading. In that case, the system will send a “Margin Call” to ask you to deposit additional funds.

Risk Scenario: Margin Call

Imagine you paid an initial margin of $1,000 and initially had a fixed contract amount. You need to maintain the maintenance margin at ). However, if your trade decreases to $500 , you will need to deposit an additional $500 to keep your account above the maintenance margin level. If you do not deposit more funds, your broker will close your position without further notice.

Summary of Key Points

• Initial Margin: The security deposit you need to open a trading position.
• Maintenance Margin: The minimum amount that must remain in your account to keep your position open.
• Risks: Margin and leverage are tools that amplify both profits and losses. If your account falls below the maintenance margin level, a Margin Call will occur, and your broker may close your position to reduce risk.