What is Margin in The Forex Trading

In forex, margin is the minimum required balance to place a trade and is a performance bond, or good faith deposit, to ensure the currency trader against trading losses or falling into a negative balance. This deposit, called margin, is typically 1% or .5% of the value of the position. The margin requirement allows traders to hold a position much larger than the account value.

For example, if you want to purchase $200,000 of EUR/USD at 200:1 leverage, the amount of money required is .5%, or $1000. The other $199,000 is collateralized with your remaining account balance. You pay no interest.

What's the relationship between margin and leverage?
Leverage and margin are direct related in the way mentioned above. The amount of leverage a forex broker gives to a trader defines the amount of margin that the client will have to commit in order to take a position in the market. For example, when leverage is 100:4, the “4” in the leverage ratio signifies the amount of capital the customer has invested of his own money, which is also known as the margin.

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