Commodity Leverage and Margin, Margin Required, Equity, Used Commodities Margin & Free margin

Margin required : It is amount of money your commodity broker requires from you to open a position. It is expressed in percentages.

Equity : It is the total amount of capital you have in your account.

Used margin : amount of money in your trading account which has already been used up when buying a commodity lot, this contract is one that is displayed in open trades. As a trader you can not use this amount of money after opening a trade order transaction because you have already used it and it isn't available to you.

In other words, because your commodity broker has opened up a position for you using capital you've borrowed, you must maintain this usable margin for your account as a security to allow you to continue using this commodity leverage he has given you.

Free margin : amount in your trading account which you can use to open new trade positions. This is amount of money in your account that has not yet been commodity leveraged because you've not yet opened a trade with this money - this is also very important for you as a trader because it enables you to continue holding your open trade transactions as explained and illustrated below.

However, if you over use commodities leverage, this free margin will drop below a certain percent at which your commodities broker will have to close all your positions automatically, leaving you with a big loss. The commodities broker at this point automatically closes all your open trade position because if your trade positions are left open broker would lose the money you'll have borrowed from them.

This is why you should always make sure you've a lot of free margin. To do this never trade more than 5 percent of your commodities trading account, in fact 2 percent is recommended.