What is Margin Call in Forex trading?
Margin Call is a notification which lets you know that you need to deposit more money in your trading account, or close losing positions, in order to free up more margin. It’s denoted as a fixed percentage which is determined by your broker and can be seen in the Account Specifications of your trading account. When the market moves against your open positions, your margin level falls. Once the margin falls to the Margin Call percentage, you should expect to get a Margin Call warning in your Terminal. Put in another way, Margin Calls warn traders that the Stop Out level is approaching. For example, if a trader with a Margin Call set at 40% has $5000 as a balance but has incurred $3,800 of losses, and has used up $1,000 of Margin, his Margin Level would be: ($5,000 - $3,800) / 1000 X 100 = 120%. If his Margin Level decreased by another 80%, he would reach 40% and receive a Margin Call.
What is Margin and why do I need it?
When you use leverage, you’re trading with more capital than you initially deposited. Margin is the amount of money you need in your trading account to keep your positions open and cover any losses.
Can I trade forex without Margin?
Yes, you can choose to trade forex with only the capital in your trading account and not leverage your trades. Because you’d be controlling less money, both the potential returns and losses would be smaller.
Trading without margin is usually done by:
- Traders with trading account balances of $100,000 or more
- Those who want to gain more experience of markets and strategies without risking their whole deposit
- People who don’t aim to earn a living in forex, and want to keep risk to a minimum
What’s the difference between Margin Level and Margin Call Level?
Your Margin Level is the ratio of Equity to the Margin you have in place for your open positions, calculated as:
(Equity/Used Margin) X 100 = Margin Level
The Margin Call level is the agreed minimum amount to which the Margin Level can fall before it triggers a Margin call.
What is a safe Margin Level to trade forex?
As a general rule, anything above 100% is considered a healthy Margin Level
Why is a Margin Call a bad thing?
If your account triggers a Margin Call, you’re highly likely to lose money. That’s because your positions will be closed whether they’re showing a gain or a loss at the time. Receiving a Margin Call in the first place means most of them are in negative.
How can I avoid getting a Margin Call?
Here are a few tips to keep your forex trading account healthy:
- Keep your trading leverage to a minimum - we recommend 10:1 leverage or less
- Manage your risk carefully by setting Stop losses on your forex trades
- Keep a healthy amount of Free Margin on the account - use no more than 1% of your Account Equity for any single trade, and no more than 5% on all trades at any given time
- Trade smaller sizes – think of each trade as one of many you will make