Trading foreign exchange on margin lets you increase your buying power. Here's a simplified example: If you have $10,000 cash in a margin account that allows 100:1 leverage, you could purchase up to $1,000,000 worth of currency-because you only have to post 1% of the purchase price as collateral. Another way of saying this is that you have $1,000,000 in buying power.

Benefits of Margin
With more buying power, you can increase your total return on investment with less cash outlay. Trading on margin should be used wisely as it magnifies both your profits AND your losses.

Margin Benefits Example:
You have a $10,000 in your trading account; you anticipated that the US Dollar (USD) is going undervalue against the British Pound (GBP) and decided to buy GBP and sell USD.

The current bid / ask price for GBP/USD is 1.7250 / 1.7260 ( meaning you can buy GBP at 1.7260 against USD or sell GBP at 1.7250 against USD, that means buying 100,000 British Pound and selling 172,600 USD.

With your leverage at 100:1 or 1%, your initial capital outlay for this trade is $1000, leaving your account balance at $9000.

As anticipated, GBP/USD rises to 1.7280 / 1.7290. To close out the position you sell GBP 100,000 British Pound and buy 179,000 USD.

Return on Investment (ROI) for this trade would be calculated as follows:

Managing a Margin Account
Trading on margin can be a profitable investment strategy, but it's important that you take the time to understand the risks.

You should make sure you fully understand how your margin account works. Be sure to read the margin agreement between you and the   clearing firm. Talk to your account representative if you have any questions. The positions in your account could be partially or totally liquidated should the available margin in your account fall below a predetermined   threshold. You may receive a margin call before your positions are liquidated.

Margin
The minimum margin requirement is $1000 per lot in a standard $100,000 account. The requirements for leverage may vary with account size or market conditions, and may be changed from time to time at the sole discretion of the brokerage firm. Margin requirements may vary from 1% to 2% during heavy trading hours of start of London session until the close of the New York session. If maximum leverage is employed, traders must maintain the minimum margin requirement on their open positions at all times. It is the customer's responsibility to monitor his/her margin account balance. The brokerage firms have the right to liquidate any or all open positions whenever a trader's minimum margin requirement is not maintained. This is an important risk management feature designed to strictly limit trading losses in your account.

Margin Example:
You have $10,000 in a trading account. To calculate the margin required to execute 4 standard lots of USD/JPY (400,000 USD) at 100:1 leverage, simply divide the contract size by the leverage amount e.g. (400,000 / 100 =4,000). You post $4,000 margin for this trade, leaving a $6,000 balance in your account.
The trading platform automatically calculates margin requirements and checks available funds before allowing you to successfully enter a new position. If you do not have adequate funds available to enter a new position, you will usually receive an "insufficient margin funds" message when attempting to deal.

If the unrealized loss of your net total open position falls below your maintenance balances, your account is under margined and all your open positions may be liquidated. To avoid liquidation of your positions, do not use your entire account balance as margin for open positions. Instead, leave enough funds in your account to withstand a market movement against your open positions.