Distinguishing required margin from the risk of a position

BabyPips explains margin as funds set aside to support an open leveraged position. It is related to the position’s notional value and the provider’s margin requirement. The amount committed as collateral can be much smaller than the value of the underlying exposure.

That distinction is essential: margin is not simply a transaction charge and should not be read as the amount at risk. Price movements affect the full exposure, while the account must continue meeting the provider’s maintenance and liquidation conditions. Requirements can differ between instruments and firms.

When reviewing an account, keep notional value, required margin, account equity and potential losses in separate columns. A percentage used in a teaching example is not a current offer from a provider. Understanding the arithmetic is a prerequisite for evaluating the product, not evidence that leverage is suitable or that losses are limited to the initial collateral.