The initial margin is the minimum amount you’ll need to put up to open a position.
It is sometimes called the required margin, entry margin, deposit margin, or just the deposit.
Initial margin can be thought of as a good faith deposit or collateral that’s needed to open a position.
Margin is NOT a fee or a transaction cost.
Margin is simply a portion of your funds that your forex broker sets aside from your account balance to keep your trade open and to ensure that you can cover the potential loss of the trade.
This portion is “used” or “locked up” for the duration of the specific trade.
Once the trade is closed, the margin is “freed” or “released” back into your account and can now be “usable” again… to open new trades.
Depending on the currency pair and forex broker, the amount of margin required to open a position VARIES.
The amount of initial margin required is usually expressed as a percentage of the total value of the contract and varies based on factors such as the volatility of the underlying asset, the creditworthiness of the parties involved, and the duration of the contract.
Once a trader has deposited the required initial margin, the position is marked to market daily, and any changes in the value of the contract are settled through the variation margin process.
If the margin account falls below a specified maintenance margin level due to losses on the position, the trader will receive a margin call, which requires them to deposit additional funds to bring the account back to the initial margin level.