Understanding Margin Level

Margin level is a crucial metric that indicates the overall health and safety of your trading account relative to your open positions.

Calculation and Definition

The margin level is the ratio of your account's total Equity to the Margin Used for all current open positions. It is always expressed as a percentage.

The formula is:

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

Example Scenario

Consider a trader with the following metrics:

  • Equity: $5,000
  • Margin Used: $1,000

The margin level calculation is:

($5,000 / $1,000) x 100% = 500%

In this scenario, the account is considered very healthy.

Rule of Thumb

A basic rule of thumb dictates that the higher the margin level, the safer the account is, making it less likely for the trader to face a stop out (automatic closure of positions due to insufficient margin).


Detailed Summary

Margin level is a vital metric in trading that assesses the financial health of an account relative to its open positions. It is calculated as the ratio of the account's total Equity to the Margin Used, expressed as a percentage. A higher margin level (e.g., 500% in the provided example) indicates a safer account, reducing the risk of a stop out (automatic position closure).

Key Takeaways

  • Margin level is a crucial metric for determining the safety and health of a trading account.
  • It relates the account's resources to the margin committed to open positions.
  • The formula is: Margin Level = (Equity / Margin Used) x 100%.
  • Equity is the account's total value.
  • Margin Used is the total margin required for all current open positions.
  • A higher margin level signifies a safer account.
  • A safer account is less likely to experience a stop out (automatic position closure due to insufficient margin).
  • An account with $5,000 Equity and $1,000 Margin Used results in a 500% margin level, considered very healthy.