What is a Margin Call in Forex Trading?

Products and Services on this website are not suitable for Hong Kong residents. Such information and materials should not be regarded as or constitute a distribution, an offer, solicitation to buy or sell any axi review investments. In reality, it’s normal for EUR/USD to move 25 pips in a couple of seconds during a major economic data release, and definitely that much within a trading day.

How to Trade on Margin

Once an investor opens and funds the account, a margin account is established and trading can begin. In a How to buy iota margin account, the broker uses the $1,000 as a security deposit of sorts. If the investor’s position worsens and their losses approach $1,000, the broker may initiate a margin call. When this occurs, the broker will usually instruct the investor to either deposit more money into the account or to close out the position to limit the risk to both parties.

Margin allows forex traders to magnify profits and losses through leverage. While attractive for its capital efficiency, margin trading poses risks like margin calls and forced liquidations. Lower margin requirements mean higher leverage, increasing the trading amount per dollar deposited.

Avoid Overleveraging:

Continuing with the USD/CAD scenario, if the broker’s maintenance margin is set at 0.5%, for your trade of one standard lot, you must always maintain at least $625 in your account. Should a market downturn cause your balance to drop below this threshold, a margin call would be initiated. If you wish to trade a position worth $100,000 and your broker has a margin requirement of 2%, the required margin would be 2% of $100,000, which is $2,000. Initially, the trade goes in your favor, and the value of your position increases.

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Without margin, you’d need the full value of the trade, which is 13,000,000 yen (or its equivalent in your base currency). However, with a 2% margin requirement, you’d only need to deposit 260,000 yen to open this position. This means you’re controlling a 13,000,000 yen position with just 260,000 yen of your own funds.

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2. If not met, the broker closes the position at a $1,500 loss to avoid further losses while the trader still has $8,500 equity remaining.
3. Some brokers charge interest on the money you borrow to open a margin position.

Margin calls can occur when markets are volatile so you may have to sell securities to meet the call at lower-than-expected prices. It’s certainly riskier to trade stocks with margin than without it because trading stocks on margin is trading with borrowed money. The biggest risk with margin trading is that investors can lose more than they’ve invested.

A margin call is triggered when the investor’s equity as a percentage of the total market value of securities falls below a certain required level called the maintenance margin. A margin call is usually an indicator that the securities held in the margin account have decreased in value. The investor must choose to either deposit additional funds or marginable securities in the account or sell some of the assets held in their account when a margin call occurs. A broker also sets aside a percentage of his trading account balance to launch a trade.

The remaining balance is provided by the broker in the form of leverage. Margin accounts are offered by brokerage firms to investors and updated as the values of the currencies fluctuate. To get started, traders in the forex markets must first open an account with either currency prediction a forex broker or an online forex broker.