Forex Leverage and Margin, Margin Required, Equity, Used Margin and Free margin

Margin required : It is the amount of money your Forex broker requires from you to open a position. It is expressed in percents.

Equity : It is the total amount of capital you've in your account.

Used margin : amount of money in your account which has already been used up when buying a currency contract, this contract is the one that is displayed in the open trades. As a trader you can't use this amount of money after opening a trade order because you have already used it & it is not available to you.

In other words, because your broker has opened up a position for you using the capital you've borrowed, you must maintain this usable margin for your account as a security to allow you to continue using this leverage he has given you.

Free margin : amount in your account that you can use to open new trade positions. This is the amount of money in your account that has not yet been leveraged because you have not yet opened a transaction with this money - this money also is very important for you as a trader because it enables you to continue holding your open trades as will be explained below.

However, if you over use leverage, this free margin will drop below a certain percent at which your broker will have to close all your positions automatically, leaving you with a big loss. Broker at this point closes all your position because if your positions are left open they would lose the money you've borrowed from them.

This is why you should always make sure you have a lot of free margin. To do this never trade more than 5 percent of your forex account, in fact 2 percent is recommended.