Lesson 8: What Is Margin Level?

You’ve learned about free margins in the previous lesson. Now, you’ll get to know about another concept closely related to and dependent on it—the margin level. 

Lesson Highlights 

• The margin level is a percentage value that determines how much free margin you still have. 
• Most brokers have a 100% minimum margin level requirement. 
• Going below the 100% margin level threshold typically results in a margin call. 
• You can measure your margin level using your account’s equity value and used margin. 

What Is Margin Level? 

Margin level refers to the percentage value you’ll get when you measure your trading account’s equity value against your used margin. 

Higher margin levels lessen your risk of getting margin calls. Conversely, the lower your margin level, the more you assume the risk of receiving margin calls. 

Margin calls, which you’ll learn about in the next lesson, are something you’d prefer to never receive when trading. 

More importantly, the margin level indicates how much free margin you can have. In turn, your free margin shows how much available funds you have to open new positions. High margin levels give you more free margin, while lower levels limit how much free margin you have. 

Margin levels are displayed in percentages and can exceed 100%. In fact, staying well above a 100% margin level is something you’ll want to do. 

This is because a 100% margin level signals that your account equity equals your used margin; you’re getting dangerously close to a margin call. 

Why You Must Pay Attention to Margin Level 

It is crucial to pay close attention to your trading account’s margin level. Many brokers impose a minimum margin level of 100%, which you must maintain to trade on their platforms. 

If your account has a margin below 100%, your broker will likely not let you open any more positions until you’ve closed some or deposited more money into your account. 

As you’ve read earlier, letting your margin level dip below 100% will result in a margin call, something traders always try to avoid. 

Calculating Margin Level 

Your broker’s trading platform will likely automatically calculate and display your trading account’s margin level. Regardless, the margin level is a vital aspect of your account, and it wouldn’t hurt if you learned how to compute it yourself. 

Determining your trading account’s margin level is straightforward. You only need two components: equity and used margin. 

The formula for it will be:

Margin Level = (Equity / Used Margin) * 100% 

You probably still remember how to compute the value of your account’s equity and used margin, but let’s review it again. 

To measure equity, you can use the formula 

Equity = Account Balance +/- Floating P/L 

You will use the plus sign if you have floating profits and the minus sign for unrealized losses. If you don’t have any open positions, your equity will be equivalent to your current account balance. 

To determine your used margin, calculate the total value of the required margins for all your open positions. 

Once you know these two values—equity and used margin—you can start computing your account’s margin level. 

To better understand how margin level is determined, look at the example below. 

John’s trading account has an equity value of USD 25,000.00. He has a long position for EUR/USD with a notional value of USD 100,000 and a 2% margin requirement or USD 2,000.00 required margin. 

Using the earlier formulas, you can calculate John’s margin level as 

Margin Level = (25,000 / 2,000) * 100 

Margin Level = 12.5 * 100 

Margin Level = 1,250 

John’s margin level is at 1,250%—way higher than the 100% minimum requirement. This means John still has a lot of room to open new trades. 

In the next lesson, you’ll learn what a margin call is.