Lesson 4
Margin is not your loss limit
Separate account equity, required margin, exposure and planned trade risk.
Study time: about 8m
Lesson
Balance usually reflects settled account activity; equity also includes the effect of open positions under your provider’s accounting rules. Available margin is another calculation. Knowing one of these numbers does not tell you all the others.
Margin is collateral required to support a position. In a securities margin account it relates to borrowing; futures margin is a performance bond rather than a down payment on the underlying asset. In either case, the amount required to open a position is not a maximum loss.
Leverage compares exposure with capital supporting it. A larger exposure makes the same percentage move matter more to account equity. Providers can change requirements or liquidate positions under their terms; losses can exceed a deposit. Before trading, understand the specific agreement instead of treating a displayed “buying power” number as a spending target.
Worked example
For a simple hypothetical linear product, $1,000 of collateral supports $20,000 of exposure. A 1% adverse move in that exposure is approximately $200 before costs: 20% of the collateral. This example is arithmetic, not a product’s margin schedule or an appropriate leverage recommendation.
Try it in replay
Repeat the calculation for $10,000 exposure supported by the same $1,000. Then list what else you need to know to determine whether a position fits a risk budget.
Check your reasoning
A 1% move is $100, or 10% of the collateral. You still need entry, invalidation, value per point, size, fees, slippage allowance and the account’s liquidation rules.