Calculate the gross margin percentage, mark up percentage and gross profit of a sale from the cost and revenue, or selling price, of an item. For net profit, net profit margin and profit percentage, see the Profit Margin Calculator. Revenue = Selling Price. Multiply this percentage by your Step 3 result to calculate your required maintenance margin. In this example, multiply 30 percent, or 0.3, by $7,500 to get a maintenance margin of $2,250. This means the equity in your margin account must be at least $2,250. Subtract your margin loan balance from your Step 3 result to calculate your equity.

Let’s discuss leverage and margin and the difference between the two.

What is leverage?

We know we’ve tackled this before, but this topic is so important, we felt the need to discuss it again.

The textbook definition of “leverage” is having the ability to control a large amount of money using none or very little of your own money and borrowing the rest.

For example, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1.

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You’re now controlling $100,000 with $1,000.

Let’s say the $100,000 investment rises in value to $101,000 or $1,000.

If you had to come up with the entire $100,000 capital yourself, your return would be a puny 1% ($1,000 gain / $100,000 initial investment).

This is also called 1:1 leverage.

Of course, I think 1:1 leverage is a misnomer because if you have to come up with the entire amount you’re trying to control, where is the leverage in that?

Fortunately, you’re not leveraged 1:1, you’re leveraged 100:1.

The broker only had to put aside $1,000 of your money, so your return is a groovy 100% ($1,000 gain / $1,000 initial investment).

Now we want you to do a quick exercise. Calculate what your return would be if you lost $1,000.

If you calculated it the same way we did, which is also called the correct way, you would have ended up with a -1% return using 1:1 leverage and a WTF! -100% return using 100:1 leverage.

You’ve probably heard the good ol’ clichés like “Leverage is a double-edged sword.” or “Leverage is a two-way street.”

As you can see, these clichés weren’t lying.

What is margin?

So what about the term “margin”? Excellent question.

Let’s go back to the earlier example:

In forex, to control a $100,000 position, your broker will set aside $1,000 from your account. Your leverage, which is expressed in ratios, is now 100:1. You’re now controlling $100,000 with $1,000.

The $1,000 deposit is “margin” you had to give in order to use leverage.

Margin is the amount of money needed as a “good faith deposit” to open a position with your broker.

It is used by your broker to maintain your position. Your broker basically takes your margin deposit and pools them with everyone else’s margin deposits, and uses this one “super margin deposit” to be able to place trades within the interbank network.

Margin is usually expressed as a percentage of the full amount of the position. For example, most forex brokers say they require 2%, 1%, .5% or .25% margin.

Based on the margin required by your broker, you can calculate the maximum leverage you can wield with your trading account.

If your broker requires a 2% margin, you have a leverage of 50:1.

Here are the other popular leverage “flavors” most brokers offer:

Margin Requirement	Maximum Leverage
5.00%	20:1
3.00%	33:1
2.00%	50:1
1.00%	100:1
0.50%	200:1
0.25%	400:1

Aside from “margin requirement”, you will probably see other “margin” terms in your trading platform.

There is much confusion about what these different “margins” mean so we will try our best to define each term:

Margin requirement: This is an easy one because we just talked about it. It is the amount of money your broker requires you to open a position. It is expressed in percentages.

Account balance: This is just another phrase for your trading bankroll. It’s the total amount of money you have in your trading account.

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Used margin: The amount of money that your broker has “locked up” to keep your current positions open.

While this money is still yours, you can’t touch it until your broker gives it back to you either when you close your current positions or when you receive a margin call.

Usable margin: This is the money in your account that is available to open new positions.

Margin call: You get this when the amount of money in your account cannot cover your possible loss. It happens when your equity falls below your used margin.

If a margin call occurs, some or all open positions will be closed by the broker at the market price.

Do you feel overwhelmed by all this margin jargon? Check out our lessons on margin in our Margin 101 course that breaks it all done nice and gently for you.

What is the relationship between Margin and Leverage?

You use margin to create leverage.

Leverage is the increased “trading power” that is available when using a margin account.

Leverage allows you to trade positions LARGER than the amount of money in your trading account.

Leverage is expressed as a ratio.

Leverage is the ratio between the amount of money you really have and the amount of money you can trade.

It is usually expressed with an “X:1” format.

For example, if you wanted to trade 1 standard lot of USD/JPY without margin, you would need $100,000 in your account.

But with a Margin Requirement of just 1%, you would only have to deposit $1,000 in your account.

The leverage provided for this trade would be 100:1.

Here are examples of Leverage Ratios depending on the Margin Requirement:

Currency Pair	Margin Requirement	Leverage Ratio
EUR/USD	2%	50:1
GBP/USD	5%	20:1
USD/JPY	4%	25:1
EUR/AUD	3%	33:1

Here’s how to calculate Leverage:

For example, if the Margin Requirement is 2%, here’s how to calculate leverage:

The leverage is 50, which is expressed as a ratio, 50:1

Here’s how to calculate the Margin Requirement based on the Leverage Ratio:

For example, if the Leverage Ratio is 100:1, here’s how to calculate the Margin Requirement.

The Margin Requirement is 0.01 or 1%.

As you can see, leverage has an inverse relationship to margin.

“Leverage” and “margin” refer to the same concept, just from a slightly different angle.

When a trader opens a position, they are required to put up a fraction of that position’s value “in good faith”. In this case, the trader is said to be “leveraged”.

The “fraction” part which is expressed in percentage terms is known as the “Margin Requirement”. For example, 2%.

The actual amount that is required to be put up is known as the “Required Margin”.

For example, 2% of a $100,000 position size would be $2,000.

The $2,000 is the Required Margin to open this specific position.

Since you are able to trade a $100,000 position size with just $2,000, your leverage ratio is 50:1.

Forex Margin vs. Securities Margin

Forex margin and securities margin are two very different things. Understanding the difference is important.

In the securities world, margin is the money you borrow as a partial down payment, usually up to 50% of the purchase price, to buy and own a stock, bond, or ETF.

This practice is often referred to as “buying on margin”.

So if you’re trading stocks on margin, you’re borrowing money from your stock broker to purchase stock. Basically, a loan from the brokerage firm.

In the forex market, margin is the amount of money that you must deposit and keep on hand with your trading platform when you open a position.

It is NOT a down payment and you do NOT own the underlying currency pair.

Margin can be looked at as a good faith deposit or collateral that’s used to ensure each party (buyer and seller) can meet their obligations of the agreement.

Unlike margin in stock trading, margin in forex trading is not borrowed money.

When trading forex, nothing is actually being bought or sold, only the agreement (or contract) to buy or sell are exchanged, so borrowing is not needed.

The term “margin” is used across multiple financial markets. However, there is a difference between how margin is used when trading securities versus when trading forex. Understanding this difference is essential prior to trading forex.