What Is Used Margin? How Locked Capital Works in CFD Trading
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Used margin is the portion of your trading account equity committed as collateral to maintain open leveraged positions. It is not a fee or transaction cost. Instead, it reduces the free margin available to absorb losses or support additional positions while your trades remain open.
So, what is used margin exactly? It is the portion of your trading account that is set aside as collateral to maintain open leveraged positions. It is not a fee, interest charge or trading cost. Instead, it represents capital committed to supporting your open positions.
When you open a leveraged CFD trade, your broker requires a margin deposit based on the value of the position and the applicable margin rate. Understanding the used margin meaning can help you see how much of your account is committed and how much remains available to absorb losses or support other positions.
Quick Takeaways
- Used margin is the capital committed as collateral for open leveraged positions.
- It reduces the amount of free margin available for new positions or to absorb adverse price movements.
- Unrealised profit and loss affect account equity and free margin in real time.
- Margin requirements can vary by market, position size and broker, and may also change while a position is open.
- Using a large proportion of your equity as margin leaves a smaller buffer before your account reaches its margin close-out level.
What Is Used Margin in Trading?
Used margin is the total amount of capital currently committed to maintaining open leveraged positions in a trading account.
If your trading platform displays used margin, it shows how much of your account equity is currently supporting existing positions. That amount is generally not available to support additional trades or withdrawals while those positions remain open.
Used margin should not be confused with a broker fee. When you close a position, the margin allocated to that position is released. Your account equity will then reflect any realised profit or loss, as well as applicable trading costs.
Brokers require margin because leveraged trading allows you to gain market exposure that is larger than the capital committed to the position. Margin therefore acts as collateral against the exposure created by the trade.
How Does Used Margin Work?
With used margin explained above, a simple way to see how it works in practice is to look at the relationship between equity, used margin and free margin.
In a basic margin account:
Equity = Used Margin + Free Margin
Free margin is the part of your equity that is not currently committed as margin. It can provide a buffer against unrealised losses and may also be available for opening additional positions.
The margin required for a position can usually be expressed as:
Used Margin = Position Value × Margin Rate
Where leverage is expressed as a simple ratio, the same relationship can also be written as:
Used Margin = Position Value / Leverage
The exact calculation can vary between brokers and instruments. Margin rates may also depend on factors such as position size, account type, margin tiers and the underlying market.
Used Margin Example
Suppose you open a position of one standard lot in EUR/USD. One standard lot represents 100,000 units of the base currency, so the position represents EUR 100,000.
If EUR/USD is trading at 1.1000, the notional value of the position is:
EUR 100,000 × 1.1000 = $110,000
Assume the position is subject to leverage of 1:30. The required margin would be:
Used Margin = $110,000 / 30 = $3,666.67
Before opening a position, checking the margin requirement can show how much account equity will remain available afterwards. This can help you avoid committing more of your available capital to margin than intended.
If your account equity is $10,000 when the trade is opened, $3,666.67 would be committed as used margin, leaving $6,333.33 as free margin.
The simplified example below assumes there are no additional charges and that the margin requirement itself does not change while the position remains open.
Market Scenario | Account Equity | Used Margin | Free Margin | Account Impact |
|---|---|---|---|---|
Trade Opened | $10,000.00 | $3,666.67 | $6,333.33 | Starting position |
$1,000 Unrealised Gain | $11,000.00 | $3,666.67 | $7,333.33 | Free margin increases |
$1,000 Unrealised Loss | $9,000.00 | $3,666.67 | $5,333.33 | Free margin decreases |
In this simplified example, unrealised profit or loss changes equity and free margin while the margin allocated to the position remains unchanged.
However, this should not be treated as a universal rule. Some providers calculate margin using current market prices or currency-conversion rates, while margin tiers or other account conditions can also affect the amount required.
Used Margin vs Free Margin: What Is the Difference?
Used margin and free margin are both related to account equity, but they serve different purposes.
Used margin is the capital committed to supporting your open positions. Free margin is the remaining equity available to absorb losses or support additional positions.
Account Metric | Used Margin | Free Margin |
|---|---|---|
Primary Role | Margin committed to open positions | Uncommitted account equity |
Available for New Positions | No | Usually yes, subject to the broker's requirements |
Effect of Unrealised P/L | Not itself a profit or loss figure | Changes as equity moves with unrealised P/L |
Can the Amount Change? | Yes, depending on the broker's margin methodology and position conditions | Yes, as equity and margin requirements change |
When a Position Closes | Margin allocated to the position is released | Recalculated after realised P/L and applicable costs |
A falling market does not simply turn used margin into a loss. Instead, an adverse price movement creates an unrealised loss, which reduces equity and therefore reduces free margin.
At the same time, the margin requirement itself may remain unchanged or may be recalculated depending on the broker, instrument and account structure. This is why traders should check the margin methodology used by their own provider.
Why Can High Used Margin Increase Close-Out Risk?
Committing a large proportion of your equity to margin leaves less free margin available to absorb adverse market movements.
For example, two accounts may have the same equity, but the account with more capital committed as margin has a smaller buffer before losses push it towards its margin close-out threshold.
A commonly used account metric is margin level:
Margin Level % = (Equity / Used Margin) × 100
The exact terminology and calculation displayed on a trading platform can vary, so traders should check how their broker defines margin level, used margin and available margin.
FCA Margin Rules for UK Retail CFD Traders
For UK retail clients, Financial Conduct Authority (FCA) rules require a minimum opening margin of 3.33% of the exposure for major foreign exchange pairs. This is broadly equivalent to a maximum leverage ratio of 30:1. Higher minimum margin requirements apply to several other asset classes.
The FCA also applies an account-level margin close-out rule. A firm must ensure that a retail client's net equity does not fall below 50% of the margin required to maintain their open positions. If it does, the firm must close one or more open positions as soon as market conditions allow.
This is more precise than saying that every broker will issue a conventional margin call before automatically liquidating the entire account. Broker notifications and close-out procedures can differ, although FCA-regulated firms must comply with the regulatory close-out requirement.
CFDs remain high-risk products. The FCA has previously stated that around 80% of customers lose money when investing in CFDs. Current FCA rules also require providers to display a standardised risk warning containing the percentage of their own retail CFD accounts that lose money, where the relevant data are available.
Managing position size therefore matters because it directly affects the amount of margin committed to your positions and the amount of account equity left to absorb adverse price movements.
Common Mistakes Traders Make with Used Margin
Beginners can run into problems when they misunderstand how margin affects the amount of capital available in their account.
- Treating Used Margin as Available Trading Capital: Margin already committed to existing positions should not be counted as capital available for new trades.
- Committing Too Much Equity Across Several Positions: Opening multiple leveraged positions can leave only a small amount of free margin available to absorb losses.
- Assuming Used Margin Can Never Change: Some brokers may recalculate margin because of market prices, currency conversion, margin tiers or changes to margin requirements.
- Ignoring Wider Spreads: Spreads can widen during periods of low liquidity, volatile markets or major news releases. A wider spread can increase an unrealised loss and reduce free margin even if the position itself has not been closed.
- Relying on a Margin Call as a Warning: Traders should not assume they will always have enough time to add funds or close a position manually before a regulatory or broker close-out threshold is reached.
Conclusion
In short, what does used margin mean for your trading account? It shows how much of your account equity is committed to supporting open leveraged positions. The more capital allocated to margin, the less free margin you generally have available to absorb adverse price movements or support other positions.
Position size, margin rates and leverage therefore have a direct effect on how much account capacity remains available. Margin calculations can also differ between brokers, so it is important to understand the methodology and close-out rules that apply to your trading account.
To understand how margin requirements relate to the size of a leveraged position, read our guide on what is leverage in trading.
This content is for educational purposes only and does not constitute financial advice. CFDs are complex leveraged products and carry a high risk of losing money.
FAQ
Is Used Margin a Fee Charged by the Broker?
No. Used margin is not a fee, commission or transaction cost — it is the portion of your account equity committed as collateral to maintain open leveraged positions. When you close a position, the margin allocated to it is released, and any realised profit or loss, along with applicable trading costs, is reflected separately in your account balance and equity.
What Is the Difference Between Used Margin and Free Margin?
Used margin is the capital committed to maintaining open positions, while free margin is the remaining equity available to absorb unrealised losses or support additional positions. In a typical margin account: Equity = Used Margin + Free Margin Free margin changes as your account equity moves. Used margin may remain unchanged in a simplified example, but the actual margin requirement can also change depending on the broker, instrument, market price, currency conversion rates or margin tiers.
Does Used Margin Change When the Market Moves Against a Trade?
Not necessarily. An adverse price movement creates an unrealised loss, which reduces your account equity and free margin, although the margin allocated to the position may remain unchanged if the broker's margin requirement stays the same. However, some brokers recalculate margin using current market prices, currency conversion rates or other factors, so you should not assume that used margin will always remain fixed until a position is closed.
What Happens If Used Margin Exceeds Account Equity?
Used margin can exceed account equity if unrealised losses reduce your equity while positions remain open. For UK retail CFD accounts, FCA rules require firms to close one or more open positions if net equity falls below 50% of the margin required to maintain those positions. The positions must be closed as soon as market conditions allow.
How Can I Reduce My Used Margin?
You can usually reduce used margin by closing positions, partially closing positions or reducing your position size where the broker and trading platform allow it. When a position is closed or reduced, some or all of the margin allocated to it is released. This will generally increase your free margin, although the final amount will also reflect any realised profit or loss and applicable trading costs.
