Margin call is a notification that 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 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. Basically, the margin call warns traders that the stop out level is approaching.
Let's say your balance is $5,000, but you've taken $3,800 in losses, and you've used $2,000 of your margin. Your margin level will be:
Margin level = ($5,000 - $3,800) / 2,000 x 100
Margin level = 60%
If you have a margin call set at 40% and your current margin level is 60%, you'll receive a margin call if your margin level drops another 20%. At that point, you'll need to respond to the margin call by either depositing more funds to your trading account or closing positions to free up more margin.
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 in 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?
Margin level is calculated as a ratio of your equity to the margin you’re using for open positions. It's calculated using the following formula.
Margin level = (equity/used margin) x 100
The margin level call 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 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'll make.
What is a stop out?
Stop out is the point at which the broker starts closing the least-profitable open positions, in order to free up more margin. Every broker sets their own stop out level, and at FXTM you can see exactly at what point stop out would be triggered for each account in the Trading Accounts Overview section of the website.
Let’s take FXTM’s Standard Account as an example. This account has a stop out level of 20% and a margin call of 40%, which means that once a trader reaches 40% of their margin level, they'll receive a margin call. If the trader doesn’t close the least-profitable positions and experiences further losses that bring the margin level down to 20%, FXTM will start closing the positions as this is the stop out level.