Margin requirement refers to the amount of collateral that a trader must deposit to open and maintain a leveraged position. In trading, leverage allows individuals to control larger positions than their actual capital would permit. For example, if a margin requirement is set at 20%, a trader would need to deposit $2,000 to control a position worth $10,000. This means the trader is borrowing $8,000 from the exchange. The margin requirement serves two main purposes. First, it mitigates risk for the broker or exchange by ensuring that traders have enough skin in the game. Second, it helps prevent excessive losses; if the value of the trader’s position declines significantly, the exchange can issue a margin call, requiring the trader to deposit more funds or close their position to avoid further losses.Understanding margin requirements is crucial for anyone looking to engage in leveraged trading, as it influences potential profits and risks involved.