Margin
Definition
Margin is the collateral required to open and maintain a leveraged position. It's expressed as a percentage of the total position value. If margin requirements are 1%, you need $1,000 to control a $100,000 position.
Margin and leverage are two sides of the same coin. A 1% margin requirement equals 1:100 leverage. Understanding margin is important because if your equity drops below the required margin level, you'll receive a margin call and positions may be automatically liquidated.
In prop trading, margin calls are especially dangerous because automatic liquidation happens at market price, potentially causing slippage that exceeds your planned stop loss. This can cause larger-than-expected drawdown hits. Most prop firms will also consider a margin call as a violation, even if the total loss is within drawdown limits.
To avoid margin-related issues, never use more than 30-50% of your available margin on any single position, and monitor your margin level throughout the day. PropJournal tracks your margin usage and alerts you when it reaches concerning levels.
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