How much money does one lot actually require?
Margin is the deposit your broker asks you to put behind a position, and in leveraged trading it is the number most often misread. It sets the denominator that every later figure divides by. What it never sets is the ceiling on what the position can cost you.
The two numbers
- Notional — the full value of the position, in the quote currency: lots × 100,000 × rate
- Margin — the cash required to hold it
Leverage = Notional ÷ Margin. A 3.33% margin requirement is 30:1. A 2% requirement is 50:1.
Worked, at two common caps
One standard lot of EUR/USD at 1.0800 is a notional of USD 108,000.
| Leverage cap | Margin required | Pip value | One pip as % of margin |
|---|---|---|---|
| 30:1 | USD 3,600 | USD 10 | 0.28% |
| 50:1 | USD 2,160 | USD 10 | 0.46% |
The pip value does not change with leverage. Only the denominator does. That is the entire mechanism: your equity moves at L times the rate the currency pair moves.
The ruin arithmetic, in pips
Equity is wiped out when the loss on the notional equals the margin, which happens at an adverse move of 1 ÷ L. Brokers do not wait that long: a common rule requires positions to be closed when account equity falls to 50% of required margin, which halves every number.
| Leverage | Move to total loss | In pips at 1.0800 | Move to a 50% close-out | In pips |
|---|---|---|---|---|
| 30:1 | 3.33% | 360 | 1.67% | 180 |
| 50:1 | 2.00% | 216 | 1.00% | 108 |
| 100:1 | 1.00% | 108 | 0.50% | 54 |
Now put those numbers next to how the pair actually behaves. EUR/USD's daily range is commonly somewhere between 50 and 100 pips, and a week routinely covers 200 or more. A 108-pip close-out is not a rare event requiring a crisis. It is an ordinary Thursday plus a data release.
Every figure above assumes the account holds exactly the required margin, which is the cap used in full. The number that decides the close-out is effective leverage, notional divided by account equity, and the account holder sets it with position size. One lot of EUR/USD in a USD 10,000 account is USD 108,000 against 10,000, or 10.8:1. Required margin at 30:1 is still USD 3,600, and the 50% rule closes the position when equity reaches USD 1,800, a loss of USD 8,200, or 820 pips rather than 180. The cap is a ceiling the regulator sets; the distance to the close-out is a ratio the account holder sets, and it shrinks every time a second position is opened.
Free margin, and positions that are secretly one position
Free margin is equity minus margin already committed. Open several positions and the buffer shrinks even where each looks modest alone.
The FX-specific trap is correlation. Long EUR/USD, long GBP/USD and short USD/CHF look like three trades. They are one short-dollar position wearing three hats — and they will hit the close-out level together, on the same dollar move, at the same moment. Diversification requires uncorrelated risks, and in a market where one currency is on one side of most pairs, that is harder than the position list suggests.
Two honest notes
Leverage is symmetric in the market and asymmetric in survival. A move that doubles the deposit and a move that removes it are the same size — but one leaves you with a position and the other does not, and no percentage gain recovers a zero.
And every number in this lesson assumes a price exists at the close-out level. Unit 4 is about the days when it does not.
Nothing here suggests using leverage, or any particular level of it. The arithmetic is the lesson.
Try it now
- A year of daily candles is below. Measure the high-to-low range of half a dozen ordinary-looking sessions and average them. That is your typical daily range in pips, and it is the denominator for everything else in this lesson.
- Divide the 180-pip and 108-pip close-out distances by that average. The answer is roughly how many ordinary days of movement stand between a fully-margined position and a forced close. For most people the number is smaller than they expect.
- Now scan the year for the tall bars — the sessions that on their own exceeded 108 pips — and count them. Record it as an observation, not a conclusion.