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

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

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

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

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

Free margin : amount in your trading account that you can use to open new trades. This is amount of money in your trading account which hasn't yet been stocks leveraged because you've not yet opened a trade with this money - this money also is very important for you as a trader because it enables you to continue holding your open trades as will be explained below.

However, if you over use stocks leverage, this free margin will drop below a certain percent at which your stocks broker will have to close all your positions automatically, leaving you with a big loss. The stock broker at this point automatically closes all your open trade position because if your trade positions are left open the 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 stock account, in fact 2 percent is recommended.