Margin Call
19 hours agoA margin call refers to the notification sent to a trader indicating that the funds in their account have dropped below the minimum required to maintain an open position.
This situation may require the trader to either deposit additional funds to restore the account balance or close positions to lower the maintenance margin needed.
The term "margin call" can also describe the condition of an account being "on margin call" due to insufficient funds to meet the margin requirement.
The phrase originated from brokers contacting their clients to inform them of the account shortfall. In modern times, margin calls are typically communicated via email.
In forex trading, there are two types of margin:
- An initial or deposit margin required to open a position.
- A maintenance margin necessary to keep the position open.
Failing to maintain the latter will trigger a margin call.
If a trade begins to incur losses, the available cash in your account may no longer suffice to keep the position open, prompting your broker to alert you to deposit more funds to meet the minimum margin requirement.
This alert is known as a margin call.
If you add more funds, the position will stay open. If you do not, your positions will be closed, and any losses will be realized.
Traders often confuse the terms Margin Call Level and Margin Call.
A “Margin Call Level” is a threshold established by your broker that triggers a “Margin Call.” It represents a specific percentage (%) of the Margin Level, such as when the Margin Level reaches 100%.
A “Margin Call” is an event. When a Margin Call occurs, your broker takes action, usually by sending a notification. This event happens only when the Margin Level falls below a certain value, which is the “Margin Call Level.”
Feeling overwhelmed by all this margin terminology? Explore our lessons on margin in our Margin 101 course, which simplifies everything for you.
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