Risk & Money ManagementMargin Warning
Margin Call
A broker notification that equity has fallen to a defined percentage of used margin and the account needs more funds or smaller positions.
What Margin Call means
A margin call is triggered when the margin level drops to a threshold set by the broker, most often 100 percent, meaning equity has fallen to the level of the collateral supporting open trades. The call itself is a warning rather than an action: the account remains live and the trader retains three ways to respond, namely depositing additional funds, closing or partially closing positions to release collateral, or hedging to reduce net exposure. Doing nothing simply allows the margin level to keep falling.
It is important to separate the margin call from the stop out, which is a lower threshold at which the broker starts closing positions itself. In fast or gapping markets the two can be reached within seconds of each other, and a broker is under no obligation to deliver a usable warning before liquidation begins. Retail accounts in the EU and UK also sit under a mandatory 50 percent close-out rule, so the practical margin for negotiation between warning and forced exit is often very narrow.
Worked example
A 10,000 dollar account holding two standard lots of EUR/USD at 1:30 leverage locks about 7,233 dollars of margin. A 138-pip adverse move creates a floating loss near 2,767 dollars, cutting equity to roughly 7,233 dollars and taking the margin level to 100 percent, the usual margin call point.
Related terms
- Stop OutThe margin level at which a broker automatically begins closing open positions to stop losses growing further.
- Margin LevelEquity divided by used margin, shown as a percentage; the ratio brokers monitor to decide margin calls and stop outs.
- EquityThe live value of a trading account: balance plus the floating profit or loss of every open position.
- Free MarginThe portion of equity not tied up as collateral, available to open new positions or absorb losses on existing ones.
- Negative Balance ProtectionA rule or policy under which a client's losses cannot exceed the funds in their account, so no debt is owed to the broker.
Frequently asked questions
What does Margin Call mean in forex trading?
A broker notification that equity has fallen to a defined percentage of used margin and the account needs more funds or smaller positions.
How does Margin Call work in practice?
It is important to separate the margin call from the stop out, which is a lower threshold at which the broker starts closing positions itself. In fast or gapping markets the two can be reached within seconds of each other, and a broker is under no obligation to deliver a usable warning before liquidation begins. Retail accounts in the EU and UK also sit under a mandatory 50 percent close-out rule, so the practical margin for negotiation between warning and forced exit is often very narrow.
What is an example of Margin Call?
A 10,000 dollar account holding two standard lots of EUR/USD at 1:30 leverage locks about 7,233 dollars of margin. A 138-pip adverse move creates a floating loss near 2,767 dollars, cutting equity to roughly 7,233 dollars and taking the margin level to 100 percent, the usual margin call point.
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