Leverage and margin: how much of the trade is yours

A trader in Mumbai opened a USD/INR position with ₹10,000 and the platform refused the order. The deposit was not large enough for the position size. Margin is the part of the money locked against the trade while it stays open. It is not a fee. It is your own money set aside. When the trade closes, the margin is released back to your account, minus any loss or plus any profit.

To find the margin in rupees, you need three numbers: the position size in units, the price of USD/INR, and the leverage ratio. The formula is: margin = (units × price) ÷ leverage. For example, 0.50 standard lots is 50,000 units. At a price of 83.2500, the position value is 50,000 × 83.2500 = ₹41,62,500. At 1:50 leverage, the margin is 41,62,500 ÷ 50 = ₹83,250.

Brokers may round the margin to the nearest rupee or add a small buffer. They may also charge a spread and a swap on top of the margin. The exact margin requirement varies between brokers and can change. Always check the contract specifications on your platform before you trade.

Leverage is often misunderstood as free buying power. A trader sees that ₹1,665 controls a position worth ₹8,32,500 and opens the largest size allowed. A small move against the position then uses a large share of the deposit. The correct approach is to decide the risk in rupees first, then choose a position size that fits, and treat leverage only as a limit set by the broker.

Suppose you have ₹1,00,000 in your account and you are willing to risk ₹2,000 on a trade. With USD/INR at 83.2500, one pip on one standard lot is ₹10. If you set a stop-loss 50 pips away, the risk per standard lot is 50 × ₹10 = ₹500. To risk only ₹2,000, you can trade 2,000 ÷ 500 = 4 standard lots. The margin required at 1:50 leverage for 4 lots is (4 × 100,000 × 83.2500) ÷ 50 = ₹6,66,000. That is more than your deposit, so you cannot trade 4 lots. You must reduce the size until the margin fits your available funds.

This shows that leverage does not increase your profit potential in a meaningful way. It only allows you to control a larger position with a smaller deposit. The risk remains based on the full position size. Higher leverage means a smaller move against you can wipe out a larger share of your margin. Use leverage as a ceiling, not as a target.

When the market moves against your open position, the loss reduces your account equity. Equity is your balance plus or minus any floating profit or loss. If equity falls below a certain percentage of the used margin, the broker may issue a margin call. This is a warning that you need to add funds or close part of the position. The exact percentage varies between brokers.

If equity falls further, the broker may automatically close your position to prevent further losses. This is called a stop-out. The stop-out level is also set by the broker and can vary. For example, a broker might issue a margin call at 100% and stop out at 50%. If your used margin is ₹83,250, a margin call could come when equity falls to ₹83,250, and a stop-out when equity falls to ₹41,625.

These levels are not uniform across brokers. Some brokers may not issue a margin call at all and simply stop out. Others may give you a grace period. Always check your broker's margin requirements and stop-out policy. Understanding these numbers helps you avoid forced closures.

A trader holds one open USD/INR position and wants to add a second. The platform shows a figure called free margin. That is the part of the account not locked against anything yet. It is the deposit plus or minus the running profit and loss, minus the margin already in use.

Suppose the deposit is ₹1,00,000 and ₹83,250 is locked as margin on an open lot. If the position is ₹4,000 in profit, equity is ₹1,04,000 and free margin is ₹20,750. A second position can only use that ₹20,750. If the same position were ₹4,000 down, equity would be ₹96,000 and free margin ₹12,750.

This is why two accounts with the same deposit behave differently. The one carrying a losing position has less room to open anything new. The one in profit has more. The broker recalculates these figures as the price moves, not once at the open.

Free margin is not spare cash to spend. It is the buffer that absorbs further losses before the account reaches the levels where the broker steps in. Keeping some of it unused leaves room for the price to move against an open position without forcing a close.