People tend to understand leverage quite easy, while get confused with margin and the margin call.  But they’re not that different!  Well, they are different, but have a symbiotic relationship.  One doesn’t exist without the other.  As a matter fact some brokers describe their leverage based on a leverage ratio and others in margin percentage.

A margin - is the collateral that your broker requires to ensure that you can cover any losses you might take on your positions. The margin available will limit the size of your position.  You can not open a position with a size bigger than the available margin.  The margin requirements depend from broker to broker.  Most popular brokers require 2% to .5% margin, which of course is relevant to their leverage.  If you’re broker offers a leverage of 100:1, you’re margin will be 1%; if a broker requires a margin of 2%, you’re leverage will be 50:1 (100:2). 

So, can you guess what’s your leverage if you’re brokers required margin is 2.5%? or how about if you know that your leverage is 300:1, can you guess what is your required margin?
Yes! – Congrats.  You can jump below to margin call.
No! Still confused? OK.  Continue reading.
See the table below how the leverage and margin are related from the most popular brokers and for the most popular pairs:

Now to make it easier for you I’ll give you two short formulas (note that most of the trading platforms that brokers offer will let you know what’s your available and used margin everytime you open a position so you don’t really have to know and calculate this much)

So, if you know leverage, just devide it’s value from 100

Example:
Let’s say leverage is 50:1, so L=50

M=100/L
M=100/50
M=2

Your margin in this case is 2%.

So, if you know the margin, just divide the margin from 1 and than multiply the sum by 100

Example:
Let’s say Margin is 0.5%, so M=0.5

L=1/M=1M*100
L=1/0.5=2*100
L=200

Your leverage in this case is 200:1.

If you use the entire available/usable margin you’ll get a margin call.

Margin call in forex is called the action that your broker takes by closing some or all of your open positions at the market price when your margin is no longer sufficient to cover your losses. In other words when you’re equity is equal to your used margin, which means you are out of available margin then you’re broker takes actions to prevent further losses, therefore closing your positions.

Margin calls are bad and if you get one (or already got it), it means that you’re not managing your money good so please read all the lessons in money management to learn more before you trade again. 

As I said the margin calls are bad, but they’re not what the perception is out there (especially within newbies).  The perception is that when you get a margin call, you’re done/you lost all your funds.  That’s not the case!  You only loose the amount that equals the available/usable margin from when you opened your last position.  Confused?  Here is an example to clarify.

Example:
If you have a mini account with a $1,000 balance, before you open any positions, you’d have $1,000 equity, $1,000 available margin and $0 used margin.

To make it easier to understand let’s play with full numbers, therefore let’s assume that our Margin with this broker is 1% and in this case we’re trading USD/CHF - one mini lot is equal to 100 units of the base currency.

If you open a 1 lot position which equals $100 (100 units of base currency) at this moment you’re equity is still $1,000, your available margin now drops to $900, and your used margin is $100.

Now if you open another position with 6 lots which equals $600 you’re equity would still be $1,000, you’re available margin now will drop to $300 and your used margin would be $700 ($100 + $600).

If the currency value goes against you, as it goes, you’ll notice that the available margin will drops along with your equity (penny per penny) until available margin is 0 and equity is equal to used margin.

In other words when there is no available margin left, at this point your equity should equal the used margin — this is where you get the margin call.

or let’s make it ‘math simple - brace for Margin Call if::

Available Margin =<0

Or in other words

Equity =<Used margin

After the margin call in this case your account will look like this:

You didn’t loose all your funds but only 30%… 30% though, is a killer to any forex trader or any other trading for that matter.  So please improve your money management skills to ensure that won’t happen.. 

(NOTE: the numbers above don’t take into consideration the spreads – counting the spreads you’d have lost little more than $300)