A Forex Margin Call – What is it and Can a Margin Call Hurt Me?
3 min readA Forex Margin call happens when a client’s account equity falls below the required margin.
Leverage financed with credit, which is a description of what a margin account entails. This is very common in Forex. A margined account is a leverageable account in which Forex currencies can be purchased for a combination of cash or collateral. Various brokers accept different limits.
Investing on margin isn’t the same as gambling. There are some similarities between margin trading and the casino. Margin is a high-risk strategy that can yield a huge profit if handled correctly. The dark side of margin is that you can lose your shirt and many other assets you own. Investing on margin without understanding what you’re doing is very risky.
As with any other investment research is the key to not losing your shirt! If, for instance, a client has 10 lots of open positions a margin call will occur if account equity drops below $5,000. At this point, some or all of the client’s open positions will be closed immediately at current prices.
Traders are also able to monitor both usable margin and used margin from the “Account Information” window of his/her online trading platform. Positions will be automatically closed once usable margin drops below zero.
Traders may avoid margin calls by either using stop loss orders or maintaining adequate funds in the account.
Normally the broker will have a minimum account size also known as account margin or initial margin e.g. $5,000-$10,000. Once you have deposited your money you will then be able to trade.
The title of this article asks, can a margin call hurt me? The answer is yes and very badly. But as in any other business there are things you can do to minimize your risk.
If for any reason the broker thinks that your position is in danger, that is, you have a position of $50,000 with a margin of one percent ($500.00) and your losses are approaching your margin ($500.00). He will call you and either ask you to deposit more money, or close your position to limit your risk and his risk.
Automatic stop loss is utilized as the safety net where the position is forced to cut automatically when the losses are at a certain point. It happens when the balance of margin account, that is, the asset value with deducting the losses, becomes to fall short of the margin limits set by your Forex broker. This practice is a common practice in the Forex market.
There is a difference from weekday trading and over the weekend trading. Reduced leverage is available leverage for over-the-weekend. The purpose of this policy is to protect clients from the risks caused by possible price swings during market closure. This could have a very serious affect on your invested funds.
How Do I Avoid A Margin call?
There are some common sense ways to avoid a margin call
1. Good money management, manage how you trade
2. Use stop loss for every position if you don’t have adequate margin
3. Do not over trade
Hopefully this article will make you aware of some of the possible pitfalls of a margin call.
Do your due diligence and you will be in a better position than many other investors.
There are many automated Forex Systems available. Look around and compare features.
I have learn several excellent stuff here. Certainly value bookmarking for revisiting. I surprise how much attempt you place to create such a wonderful informative web site.
I am happy that I observed this web blog, just the right info that I was looking for! .
I really like your blog.. very nice colors & theme. Did you make this website yourself or did you hire someone to do it for you? Plz respond as I’m looking to create my own blog and would like to find out where u got this from. thanks
After research a couple of of the blog posts in your website now, and I really like your means of blogging. I bookmarked it to my bookmark web site checklist and can be checking again soon. Pls try my website online as nicely and let me know what you think.
Excellent website. Plenty of useful information here. I am sending it to several buddies ans also sharing in delicious. And naturally, thanks to your effort!
I don’t usually comment but I gotta tell thanks for the post on this one : D.
An interesting discussion is worth comment. I think that you should write more on this topic, it might not be a taboo subject but generally people are not enough to speak on such topics. To the next. Cheers
I like the helpful info you provide in your articles. I’ll bookmark your blog and check again here frequently. I am quite certain I will learn a lot of new stuff right here! Best of luck for the next!
I discovered your blog site on google and test a few of your early posts. Proceed to keep up the superb operate. I just additional up your RSS feed to my MSN News Reader. Seeking forward to reading extra from you later on!…
The core of your writing while appearing reasonable in the beginning, did not settle perfectly with me after some time. Someplace within the paragraphs you actually managed to make me a believer unfortunately only for a very short while. I however have a problem with your leaps in assumptions and one would do nicely to help fill in those gaps. When you actually can accomplish that, I would undoubtedly end up being impressed.
you have a great blog here! would you like to make some invite posts on my blog?
hi!,I really like your writing very a lot! share we keep up a correspondence more approximately your post on AOL? I need a specialist in this area to solve my problem. Maybe that’s you! Having a look ahead to see you.
Your place is valueble for me. Thanks!…
You completed some good points there. I did a search on the subject and found nearly all people will go along with with your blog.
Hello, I think your blog might be having browser compatibility issues. When I look at your blog site in Opera, it looks fine but when opening in Internet Explorer, it has some overlapping. I just wanted to give you a quick heads up! Other then that, great blog!
Have you ever considered writing an ebook or guest authoring on other sites? I have a blog centered on the same ideas you discuss and would really like to have you share some stories/information. I know my readers would value your work. If you’re even remotely interested, feel free to send me an e-mail.
As I web-site possessor I believe the content matter here is rattling great , appreciate it for your hard work. You should keep it up forever! Best of luck.
It’s in point of fact a nice and helpful piece of info. I’m glad that you simply shared this helpful information with us. Please keep us up to date like this. Thanks for sharing.
I like this site its a master peace ! Glad I found this on google .
I am now not positive where you are getting your info, but good topic. I must spend some time learning much more or working out more. Thanks for excellent info I used to be searching for this information for my mission.
I dugg some of you post as I cerebrated they were very useful very useful