Leverage and Margin, Margin Required, Equity, Used Margin and Free margin

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

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

Used margin : amount of money in your trading account that has already been used when opening a currency contract, this contract is one that is displayed in open positions. 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 online broker has opened up a position for you using capital you have borrowed, you must keep this usable margin for your trading account as a security to allow you to continue using this leverage he has given to you.

Free margin : amount in your account that you can use to execute new trade transactions. This is amount of money in your account which has not yet been leveraged because you have not yet opened a transaction with this money - this money also is very important for you as a investor because it enables you to continue holding your open trades as will be explained below.

However, if you over use trading leverage, this free margin will go below a certain % at which your broker will have to liquidate all your trade transactions automatically, leaving you with a big loss. Broker at this point liquidates all your trade position because if your trades are left open they would lose the money you have borrowed from them.

This is why you should always make sure you have a lot of free margin. In order to do this as a trader never trade more than 5 percentage of your trading account, in fact 2 percent is advised.