A Forex Margin Call – What is it and Can a Margin Call Hurt Me?

A Forex margin call occurs when a client’s account equity falls below the required margin.

Credit funded leverage, which is a description of what a margin account entails. This is very common in Forex. A margin account is a leveraged account in which Forex currencies can be purchased in exchange for a combination of cash or collateral. Various brokers accept different limits.

Investing on margin is not the same as gambling. There are some similarities between margin trading and 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 that you own. Trading on margin without understanding what you are doing is very risky.

As with any other investment, research is the key to not losing your shirt! If, for example, a client has 10 lots of open positions, a margin call will occur if the account equity falls below $5,000. At this point, some or all of the client’s open positions will be closed immediately at the current prices.

Traders can also monitor both usable margin and used margin from the “Account Information” window of their online trading platform. Positions will be automatically closed once usable margin falls below zero.

Traders can avoid margin calls by using stop loss orders or by maintaining adequate funds in the account.

Typically, the broker will have a minimum account size, also known as account margin or initial margin, for example, $5,000-$10,000. Once you have deposited your money, you will be able to trade.

The title of this article asks, can a margin call hurt me? The answer is yes and very bad. But like any other business, there are things you can do to minimize your risk.

If for some reason the broker thinks your position is in jeopardy, that is, you have a $50,000 position at one percent margin ($500.00) and your losses are close to your margin ($500.00). He will call you and ask you to deposit more money or close his position to limit his and his risk.

The automatic stop loss is used as the safety net where the position is forced to automatically cut when the losses are at a certain point. It occurs when the margin account balance, i.e. the value of the asset less losses, falls below the margin limits set by your Forex broker. This practice is a common practice in the Forex market.

There is a difference between weekend trading and trading over the weekend. Reduced leverage is the leverage available over the weekend. The purpose of this policy is to protect clients from the risks caused by possible price fluctuations during the market close. This could have a very serious effect 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 each position if you do not have adequate margin
3. Don’t overtrade

Hopefully, this article will make you aware of some of the potential dangers 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. Take a look around and compare features.