Introduction

In Forex trading, two of the most important concepts that every beginner must understand are margin trading and account balance. They form the foundation of how trading platforms calculate available funds, risk, and overall trading capacity. Understanding these terms is critical because they directly affect whether you can open new trades, maintain existing ones, and avoid margin calls.

In this guide, we will break down what margin trading is, how account balance works, and how these two elements connect. We will also show practical examples and suggest safe ways for beginners to practice through demo accounts and gamified learning tools like Forex Game.

What is Margin Trading in Forex?

Margin trading allows traders to open positions much larger than their own capital by borrowing funds from their broker. This process is made possible by leverage. For instance, with 50:1 leverage, a trader can control a $50,000 position with just $1,000 of their own funds.

The broker requires a portion of this position size to be set aside as collateral, known as margin. This ensures that if the trade moves against the trader, the broker has funds reserved to cover potential losses. Margin magnifies both profits and risks, which is why careful management is essential.

What is Account Balance in Forex?

Your account balance is the total amount of money you have in your trading account before accounting for open trades. It reflects your deposits, withdrawals, and the net profit or loss from closed trades. However, it does not include floating profits or losses from open positions.

For example, if you deposit $1,000 and later close a trade with a $200 profit, your account balance becomes $1,200. But if you have open trades, your account balance will remain unchanged until those trades are closed.

Difference Between Account Balance and Equity

While account balance shows your settled funds, equity represents your real-time account value, including open trades. Equity = Balance + Floating Profit/Loss.

For example, if your account balance is $1,200 and you have an open trade currently at a $100 unrealized profit, your equity is $1,300. On the other hand, if the trade shows a $150 floating loss, your equity is $1,050.

Free Margin and Margin Level

Free margin is the portion of your equity that is not tied up in maintaining open positions. It determines whether you can open new trades. If your free margin drops too low, you may face a margin call.

Margin level is the ratio of equity to used margin, usually expressed as a percentage. Brokers use this value to decide if they should trigger a margin call or stop out trades. For example, if the margin level falls below 100%, many brokers will prevent you from opening new positions.

Margin Calls and Stop Outs Explained

A margin call happens when your equity falls below the required margin set by your broker. This usually occurs when trades go against you. If you fail to add more funds or close positions, the broker may automatically liquidate trades to protect themselves, an action called a stop out.

This mechanism protects traders from going into negative balances, but it can also wipe out accounts quickly if leverage is used recklessly.

Conclusion

Margin trading and account balance are the foundation of Forex trading. Balance reflects your actual funds, while margin allows you to control larger trades. Understanding the link between equity, free margin, and margin level is critical for avoiding margin calls and protecting your account. With proper risk management and practice in a safe environment, such as demo accounts and Forex Game, beginners can learn to navigate Forex with confidence.