A margin call is an important notification from your broker indicating that your trading account's margin level has fallen below the required threshold of 100%. This alert serves as a warning that your open positions are at risk and immediate action may be needed to avoid further consequences.
How Margin Calls Work
When you trade on margin, you're essentially borrowing funds from your broker to control larger positions than your account balance would normally allow. Your margin level is calculated as a percentage that represents the relationship between your equity and used margin:
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Margin Level = (Equity / Used Margin) × 100%
When this percentage falls below 100%, it triggers a margin call notification.
What Happens When You Receive a Margin Call
Upon receiving a margin call, you have several options to resolve the situation:
Deposit Additional Funds: The most straightforward solution is to add more funds to your trading account, which will increase your equity and raise your margin level above the required threshold.
Close Some Positions: Reducing your exposure by closing some losing positions will decrease the amount of margin being used, thereby improving your margin level.
Partially Close Positions: Instead of closing entire positions, you can reduce their size to free up some margin.
Stop Out Level - The Next Critical Threshold
If you don't take action after receiving a margin call and your margin level continues to decrease, your account will eventually reach the stop out level. At this point, the system will automatically begin closing your positions, starting with the most unprofitable ones, until your margin level returns above the minimum requirement.
The stop out level varies depending on your account type and trading conditions, but it typically occurs when your margin level falls to around 50%.
Best Practices to Avoid Margin Calls
Practice Proper Risk Management: Never risk more than a small percentage of your account on any single trade.
Use Stop Loss Orders: Always protect your positions with stop loss orders to limit potential losses.
Monitor Your Margin Level: Regularly check your margin level, especially during volatile market conditions.
Maintain a Sufficient Buffer: Keep additional funds in your account as a safety buffer against market fluctuations.
Understand Leverage: Be aware that higher leverage increases both potential profits and the risk of margin calls.
For more information about margin requirements and how they apply to your specific account type, please contact our Live Chat support team through your Client Portal.