When trading forex, you are only required to put up a small amount of capital to open and maintain a new position.
This capital is known as the margin.
For example, if you want to buy $100,000 worth of USD/JPY, you don’t need to put up the full amount, you only need to put up a portion, like $3,000. The actual amount depends on your forex broker or CFD provider.
Margin can be thought of as a good faith deposit or collateral that’s needed to open a position and keep it open.
It is a “good faith” assurance that you can afford to hold the trade until it is closed.
Margin is NOT a fee or a transaction cost.
Margin is simply a portion of your funds that your forex broker sets aside from your account balance to keep your trade open and to ensure that you can cover the potential loss of the trade.