The short answer
- Balance is your money from closed trades.
- Equity is your balance plus or minus your open trades right now.
- Margin is the part of your money the broker locks while a trade is open.
- Free margin is equity minus margin: what is left for new trades and losses.
- Margin level is equity divided by margin, times 100. It is the number the broker watches. At the margin call level (often 100%) you get a warning. At the stop-out level (for example 50%) the broker starts closing your trades.
The rest of this page works through one gold trade so you can see every number move.
The five numbers in one table
| Number | Simple meaning | Formula |
|---|---|---|
| Balance | Money from closed trades | Deposits + closed profits − closed losses |
| Equity | What the account is worth right now | Balance + open profit or loss |
| Margin (used margin) | Money locked to keep trades open | Position value ÷ leverage |
| Free margin | Money still free | Equity − margin |
| Margin level | Health of the account | Equity ÷ margin × 100 |
Think of margin as a deposit on a rented bike. The shop holds the deposit while you ride. It is still your money, but you cannot spend it until you return the bike (close the trade). Your equity is how much the deposit plus your pocket money is worth after any damage (losses) so far.
The example: one gold trade, step by step
Assumptions (all hypothetical, round numbers):
- Account balance: $1,000, no other trades open
- Trade: buy 0.10 lot of XAUUSD at $4,000.00
- Contract size: 1 lot = 100 oz, so 0.10 lot = 10 oz, and every $1 move = $10 of profit or loss
- Leverage: 1:100
- Margin call at 100%, stop-out at 50% (your broker’s levels may differ)
- We ignore the spread, commission and swap so the maths stays clear
At the moment you open the trade
- Position value = 10 oz × $4,000 = $40,000
- Margin = $40,000 ÷ 100 = $400
- Balance = $1,000. Equity = $1,000 (no profit or loss yet)
- Free margin = $1,000 − $400 = $600
- Margin level = $1,000 ÷ $400 × 100 = 250%
You controlled $40,000 of gold with $400 locked. That is what leverage does. It did not make the trade small: every $1 gold moves is still $10 for you.
Gold rises to $4,010
- Open profit = $10 × 10 oz = +$100
- Balance = $1,000 (the trade is still open, so balance does not change)
- Equity = $1,000 + $100 = $1,100
- Free margin = $1,100 − $400 = $700
- Margin level = $1,100 ÷ $400 × 100 = 275%
Gold falls to $3,980
- Open loss = $20 × 10 oz = −$200
- Balance = still $1,000
- Equity = $1,000 − $200 = $800
- Free margin = $800 − $400 = $400
- Margin level = $800 ÷ $400 × 100 = 200%
This is why traders who only watch the balance get surprised. The balance says $1,000. The real value of the account is $800.
The same numbers side by side
| Gold price | Open P/L | Balance | Equity | Margin | Free margin | Margin level |
|---|---|---|---|---|---|---|
| $4,010 | +$100 | $1,000 | $1,100 | $400 | $700 | 275% |
| $4,000 (open) | $0 | $1,000 | $1,000 | $400 | $600 | 250% |
| $3,980 | −$200 | $1,000 | $800 | $400 | $400 | 200% |
| $3,940 (margin call) | −$600 | $1,000 | $400 | $400 | $0 | 100% |
| $3,920 (stop-out) | −$800 | $1,000 | $200 | $400 | −$200 | 50% |
When does the margin call come?
At a 100% margin call, equity has fallen to the margin: $400. The account can lose $1,000 − $400 = $600 first. At $10 per $1, that is a $60 move, so the margin call comes at $4,000 − $60 = $3,940.
At the margin call, nothing is closed yet. You usually get a warning and cannot open new trades. You can close the trade or add money. Adding money to save a losing trade is how many small accounts become big losses: read blew your account? what to do next before you ever do it.
When does the stop-out come?
At a 50% stop-out, equity has fallen to half the margin: $200. The account can lose $1,000 − $200 = $800 first. That is an $80 move, so the stop-out comes at $4,000 − $80 = $3,920.
At stop-out, the broker closes your trade at the market price. In a fast move the fill can be worse than $3,920, so the real loss can be bigger than $800. If you have several trades, many platforms close the biggest loser first and check the margin level again. The full rules, including the 50% close-out rule for retail clients in the UK, EU and Australia, are in margin call and stop-out on gold.
How big is an $80 move? Our gold volatility tool measured an average daily range of about $74 over the 20 sessions to 3 November 2026. So this account could reach stop-out on one ordinary busy day without a stop-loss.
The trap: opening a second trade on “free” margin
At $3,980 the platform shows $400 of free margin. It looks like room for another trade. Watch what happens if you buy another 0.10 lot there:
- New margin = 10 oz × $3,980 ÷ 100 = $398
- Total margin = $400 + $398 = $798
- Equity = $800 (the new trade starts at zero)
- Free margin = $800 − $798 = $2
- Margin level = $800 ÷ $798 × 100 = about 100.3%
You are now at the margin call the moment you open, and each $1 move against you costs $20 instead of $10. Free margin is not spare money. It is your cushion against losses.
Margin is not risk
The most important lesson on this page: the margin number does not tell you how much you can lose. Your risk comes from the lot size and the distance to your stop-loss.
| Without a stop-loss | With a $8 stop-loss at $3,992 | |
|---|---|---|
| Worst case before the broker acts | About $800 (stop-out at $3,920) | $8 × 10 oz = $80 |
| Share of a $1,000 account | 80% | 8% |
Even the $80 risk is large for a $1,000 account. Sizing the trade from the stop, for example 1% risk, would mean a much smaller position: the lot size calculator does that sum. The gold margin calculator shows the margin for any lot size and leverage, and gold leverage explained shows why 1:500 does not make a trade safer.
A note on how your platform counts
- Some platforms recalculate margin as the price moves. We kept it at $400 to keep the maths simple. At $3,940 the recalculated figure would be 10 × $3,940 ÷ 100 = $394, a small difference.
- Spread and commission come off equity as soon as you open, so the real numbers start a few dollars lower.
- The 1:100 leverage is only an example. For retail clients in the UK, the EU and Australia, gold is capped at 1:20, which needs five times more margin for the same position.
- Margin call and stop-out levels vary. Your broker’s account terms list them.
Key points
- Balance only changes when a trade closes. Watch equity, not balance.
- Free margin is your cushion, not spare money for more trades.
- Margin level falls as losses grow. The broker warns you at the margin call and closes trades at the stop-out.
- Leverage changes the margin, not the dollars per move.
- A stop-loss and a small lot size protect you. Margin level does not.
Before this page, read how retail trading works to see where the broker sits. Next, practise all of this on a demo account. The full path is on Start here: The Gold Trader’s Journey.
Sources
- CME Group: COMEX gold futures contract specifications (100 troy ounces per contract, the size most XAUUSD lots follow; check your own platform’s contract size)
- XAUUSD Global: gold volatility tool (20-day average daily range, data to 3 November 2026)
- XAUUSD Global: margin call and stop-out on gold (retail leverage caps and the 50% close-out rule, with their regulator sources)
- All prices, balances and levels in the example are hypothetical
Educational content only, not financial advice. Trading gold with leverage carries a high risk of loss.
Frequently asked questions
What is the difference between balance and equity?
Balance is the money in your account from closed trades only. Equity is balance plus or minus the profit or loss of your open trades right now. With no open trades they are the same. With a losing open trade, equity is lower than balance.
What is free margin?
Free margin is equity minus the margin your open trades are using. It is the money still available to open new trades or to absorb losses. When free margin falls to zero, your margin level is 100%, the level many brokers use for a margin call.
What is a good margin level?
There is no single good number, because risk depends on your position size and stop-loss, not on margin level. A high margin level only means you are far from a stop-out. In our example, a margin level of 250% at the start falls to the 100% margin call after a $60 move against 0.10 lot.
What happens at a margin call?
At the margin call level, often 100%, the platform warns you that your equity has fallen to the margin your trades use, and you usually cannot open new trades. Nothing is closed yet. You can close trades or add money. The levels are set by your broker, so check its account terms.
What happens at stop-out?
At the stop-out level, for example 50%, the broker starts closing your trades automatically, usually the one with the biggest loss first, until the margin level is back above the limit. It closes at the market price, which in a fast gold move can be worse than the level.
Does leverage change how much I can lose?
Leverage changes the margin a trade needs, not how much each dollar move is worth. A 0.10 lot of gold gains or loses $10 for every $1 move at 1:20 or at 1:500. Higher leverage simply lets you open bigger positions, which is how accounts are lost quickly.
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