Margin
The capital the firm holds as collateral for a leveraged position — released when the position closes, consumed if the position loses enough.
Definition
Margin is the portion of account equity the firm holds aside to collateralize an open leveraged position. On a 1:100 leverage account, the margin required is 1% of the position's face value — $1,000 for a $100,000 position. Margin is not a fee; it is a reservation against the account balance that returns when the position closes (minus any realized loss). If a position's unrealized loss drops account equity below the firm's margin-call threshold (typically 50% of required margin), the firm issues a margin call and may force-close positions to protect against negative equity.
Example
Why It Matters
On a prop firm account, a margin call usually hits at the same time or before a drawdown breach — and in most cases, a forced close on margin will also constitute a drawdown breach that ends the account. The practical implication: traders sizing multiple open positions need to account for total used margin across all of them, not just per-trade margin, because a correlated move against multiple open positions can cascade into a margin event even if no single position breaches its own limit.