Friday, July 19, 2024

Margin Call

In this article, We learn about “Margin Call”.Let’s Go!

A Margin Call is a term used to describe an alert sent to traders informing them that the capital in their account has fallen below the minimum amount required to maintain a position.

A margin call may mean that the trader must invest additional funds to balance the account, or close a position to reduce the required maintenance margin.

Margin call can also be used to describe the status of your account, such as “Margin call” because the funds in your account are below the margin requirement.

The term “margin call” comes from the practice of brokers calling clients to tell them that their accounts were in deficit. Today, margin calls are sent via email.

Receive a Margin Call

In Forex trading, there are two types of margin:

  1. A Deposit or initial margin required to open a position
  2. A Maintenance Margin Required to maintain the position.

Failure to adhere to the latter will trigger a margin call.

If trades start to lose money, the cash in your account may no longer be enough to maintain the position, and your broker will notify you to deposit more cash in your account to bring your balance up to the minimum margin.

This notification is a margin call.

If you add more cash, the position will remain open.

If you do not do this, your position will be closed and any resulting losses will be realized.

“Margin Call Level” vs. “Margin Call”

Traders often confuse margin call levels and margin calls.

  • “Margin Call Level ” is the threshold set by the broker that will trigger a “Margin Call”. It is a specific percentage (%) value of the margin level. For example, when the margin level is 100%.
  • A “margin call” is a event. When a margin call occurs, your broker will take some kind of action. Typically, the action is “Send Notification”. This event only occurs when the margin level falls below a certain value. This value is the “margin call level”.

Are you overwhelmed by these fringe terms? Check out our Margin 101 course on margin which breaks it all down for you, easy and hassle-free.

If you want to learn more foreign exchange trading knowledge, please click: Trading Education.

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