What is margin call?
Learn what margin call is and how you can avoid experiencing it.
* Trading is risky. Your capital is at risk.
Margin calls are a critical concept for traders to understand, especially when using leverage in forex trading.
This guide explains what a margin call is, why it occurs, and how traders can avoid it. By mastering this essential risk management tool, you can protect your capital and trade with greater confidence.
Key takeaways
Margin call is a broker's notification that you need to deposit more funds or close losing positions to maintain your margin level
A margin call occurs when your margin level falls below the broker's required percentage due to market movements against your open positions
Use low leverage, set Stop Loss orders, maintain a healthy Free Margin, and trade smaller position sizes to manage risk effectively.
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 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?
While there's no single "safe" level, a margin level above 100% is generally considered healthy. This indicates that you have enough equity in your account to cover your used margin and provides a buffer against market fluctuations.
Studies have shown that traders who consistently keep their margin levels above this threshold experience fewer account liquidations. For instance, a 2021 report found that accounts with an average margin level between 120%-200% showed a 40% lower likelihood of encountering losses severe enough to result in a margin call, compared to those below 100%.
Why is a margin call a bad thing?
A margin call is a serious warning sign that you're at risk of significant losses. When it's triggered, your broker will automatically close some or all of your open positions to protect both you and them from further negative price movements.
If your account triggers a margin call, you’re highly likely to lose money.
The problem is that these positions are closed immediately, regardless of whether they are currently profitable or not. Since a margin call only happens when your account equity has dropped significantly, it's highly probable that most of your trades are already in a losing position, making financial losses almost certain.
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
Frequently asked questions
A margin call is a warning from your broker that your account's margin level has fallen below the required percentage. It signals that you need to deposit more funds or close positions to avoid Stop Out levels.
To avoid a margin call, use low leverage (e.g., 10:1 or less), set Stop Loss orders on trades, maintain a healthy free margin, and limit your risk to 1% of your account equity per trade.
If you ignore a margin call, your broker may close your open positions automatically to prevent further losses, which could result in significant financial loss.
Margin level is the ratio of your account's equity to the used margin, while margin call level is the minimum margin percentage required before a margin call is triggered.
Yes, trading without margin reduces risk as you only trade with your deposited capital, avoiding the amplified losses that leverage can cause.
However, this also means you are limiting potential profits. A healthy attitude to risk is about balancing upside and downside.
The bottom line
Understanding margin calls and how to manage them is essential for successful trading. By using effective risk management strategies, such as maintaining a healthy margin level and setting Stop Loss orders, you can protect your capital and trade with confidence.
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