Understanding the Margin Call

A margin call is a critical notification alerting you that immediate action is required regarding your trading account. You must either deposit more money or close losing positions to free up used margin.

Margin Call Trigger Criteria

  • The margin call is denoted as a fixed percentage determined by your broker.
  • You can find this required margin call percentage in the account specifications of your trading account.
  • A warning is received on your device when the market moves against your open positions and the margin level falls to this margin call percentage.

Significance of the Warning

Receiving a margin call is a serious warning for the trader that the eventual stop out level is quickly approaching. Action must be taken to prevent automatic closure of positions.

Calculating Your Margin Level

The margin level determines how close you are to the trigger point. It is calculated using the following formula:

Margin Level = (Equity / Used Margin) * 100

Example: If the broker's margin call level is set at 40%, and your calculated margin level decreases to 40%, you will receive the margin call warning.


Detailed Summary

A margin call is a mandatory notification issued by a broker, requiring a trader to either deposit additional funds or close losing positions to restore the necessary margin level. This warning is triggered when the market moves adversely against open positions, causing the account's margin level to drop to a pre-determined percentage set by the broker. Receiving a margin call signifies that the automatic stop out level is imminent, necessitating immediate action to prevent the automatic closure of positions. The account's margin level is calculated using the formula: (Equity / Used Margin) * 100.

Key Takeaways

  • A margin call is a notification demanding immediate action (deposit funds or close losing positions) to increase the account's margin.
  • The trigger point for a margin call is a fixed percentage determined by the broker and found in the account specifications.
  • The margin call warning is received when the market moves negatively and the margin level drops to this required percentage.
  • A margin call is a serious warning indicating that the eventual stop out level (automatic position closure) is rapidly approaching.
  • The Margin Level is calculated as: (Equity / Used Margin) * 100.
  • If the calculated margin level hits the broker's specified margin call level (e.g., 40%), the warning is issued.