When you open a spot position on Margin, there is an amount of trade balance that is deducted first, which is known as the Used Margin. Used Margin, as opposed to free Margin, does not include potential gains or losses.
Correspondingly, the used Margin will drop when you close or partially close the position.
Used Margin
A specific sum of money is "locked up" when you create a new position for margin trading. The needed Margin refers to this precise sum of money. The required Margin for any particular position varies depending on the desired Margin and the specifics of the position.
All of the Margin that is "locked up" and cannot be used to initiate new positions is referred to as Used Margin.
The Margin here has already been "utilized." Therefore, the term "Used Margin."
Used Margin is the sum of money you had to deposit to keep ALL of your trades open, as opposed to the Required Margin, which is connected to a SPECIFIC deal.
Additionally, you will discover a used margin if you add all the required margins for all your positions. The total amount of money that is "locked up" and cannot be used to start new positions is referred to as the utilized Margin. Used Margin often indicates how much money is required to keep your deals open.
Depending on whether we employ leverage or not, there are various techniques to determine the required and utilized Margin.
Example:
Required Margin is equal to Notional Value * Required Margin
The number of lots you specified for a position at the current price is typically referred to as the notional value. Depending on the item, different lot requirements apply. The notional value formula is thus:
Nominal value= Price * Lots
The amount of Margin needed to open a position is typically represented as a percentage of the "full position" in the margin requirement formula. It also demonstrates how leverage increases trade size. Therefore, the margin requirement is 2% if you need to have 2,000 USD on your account to open a 100,000 USD deal. You can also see from this example that the 2% margin requirement is equivalent to 50x leverage (100,000/2,000).
Imagine you wish to place a trade on the USDT/USD market. $1 is the cost of 1 USDT. The margin requirement is 5%, and 1 Lot is equal to 1 USDT (20x leverage).
The notional value of a stake with a 10,000 lot opening would be 10,000 USDT (1 * 10,000). Therefore, the needed Margin in this instance is 500 USDT (10,000 x 0.05).
Your utilized Margin will be 500 USDT if you don't hold other positions. However, your Used Margin would be 600 USDT (500 + 100) if you were to establish a new position with a 100 USDT necessary margin.
Final Insights
In sum, The amount of account equity currently pledged to sustain open positions is known as the Used Margin.
Consider the used Margin as the trader's "good faith" deposit for open positions. Make sure to have enough knowledge about the requirements and restrictions of Margin Trading before entering the actual process.