Account balance
Your balance is the cash sitting in the account when no trades are open. Deposit £5,000 and take no positions and your balance is £5,000. Balance only changes when trades are closed, when you deposit or withdraw funds, or when swap and interest charges are applied.
Equity
Equity is your balance plus or minus the profit and loss on any open positions. If your balance is £5,000 and you have an open trade that's currently £150 in profit, your equity is £5,150. If the trade is £200 in the red, equity is £4,800.
Equity is the real-time picture of what the account is worth right now. It's the number your broker uses to decide whether you're still safe.
Used margin
When you open a position, the broker sets aside a portion of your funds as collateral. That's used margin. The size of it depends on the position size and the leverage available on the pair. On a 30:1 pair, one standard lot (100,000 units) locks up roughly 1/30th of the notional value.
Used margin is not a cost. It's your own money, temporarily reserved while the position is open. When the trade is closed, the margin is released back to free margin.
Free margin
Free margin is what's left over — the equity that isn't currently locked against open positions. It serves two purposes: it absorbs adverse moves on your open trades, and it's the pool available for opening new positions.
The relationship is simple: equity = used margin + free margin. When a trade moves against you, equity falls and free margin shrinks with it. When free margin runs out, you're in trouble.
Margin level
Margin level is the ratio of equity to used margin, expressed as a percentage. It's the single number brokers use to judge account health. A margin level of 1000% means you have ten times more equity than the margin holding your trades open — very safe. A margin level near 100% means your equity is barely covering your used margin.
The exact calculation isn't important to memorise. What matters is knowing that as trades go against you, this number falls. Watch it, and you're never surprised.
Margin calls
When margin level drops below a threshold set by your broker (often 100%), you receive a margin call — a warning that you need to add funds or close positions. It is not an offer to help; it is a signal that your account is in real danger.
Stop-out levels
If margin level keeps falling, the broker will start closing positions automatically to protect itself. That threshold is called the stop-out level — commonly around 50%. Positions are usually closed largest-loss-first until margin level recovers.
Getting stopped out is the worst possible outcome: you're crystallising losses at the market's worst price for you, and you have no control over which positions close first.
How proper risk management protects free margin
This is where the pieces fit together. If you risk 1% per trade and use sensible stops, drawdown eats free margin slowly and predictably. If you over-size a single position, one bad move can chew through free margin in minutes, and you're one gap away from a stop-out.
The rules from the risk management guide — small percentage per trade, stops in the right places, caps on daily loss — exist precisely to keep margin level comfortably high at all times. Do that, and margin becomes a background number you rarely think about.
Key takeaways
- Balance = cash with no trades open; equity = balance ± open P&L
- Used margin is your own money temporarily locked against open trades
- Free margin absorbs losses and funds new positions
- Margin level (equity ÷ used margin × 100) is your account's health score
- Margin calls warn you; stop-outs close positions automatically
- Proper risk management keeps margin level a non-issue