What is Margin Call? If your account balance falls below the minimum usable margin, your broker may close some or all of your positions. This condition ensures that your account does not fall into a negative balance even with fast market movements. It will be more effective to explain the concept of margin with examples.
- You have opened an account worth $ 3,000. In this case, the usable margin is $ 3,000.
You have entered a position to buy GBPUSD 100,000 with a margin of $ 1,000 at a standard 1 lot. In this case, your available margin is $ 2,000 and with this amount you can either open a new position or use it to cover your loss if the transaction goes backwards.
If your loss exceeds the available margin level of $ 2,000, your broker may call for margin and ask you to fund your account.
- You have opened a standard forex account worth $ 10,000. You opened a position in AUDUSD parity with a margin of $ 1,000 with a value of 1 standard lot. The available margin is your remaining balance so that we can open another position.
You had a usable margin of $ 10,000 before opening the position, and after opening a position worth $ 1,000 to 1 lot, your usable margin was $ 9,000. If your loss exceeds your remaining available margin of $ 9,000, your broker calls for margin.
You need to know the difference between used and usable margin very well! If the capital in your account falls below the available margin due to your losses, you will either have to fund your account or your broker will close some or all of your positions to reduce or limit your risk. As a result, you can never lose more money than you have in your account.
If you are going to trade using margin, it is useful to know the principles of your broker in this regard. In addition; If you are going to leave your positions open over the weekend, you should know that some brokers can increase their margin rates on weekends.
Margin is a very important concept in financial commodities trading and too much can be dangerous. The important thing is that this issue is well understood by the investor, and accordingly it will be your personal decision to keep your risk at a comfortable level for you.
Brokers use the terms either leverage ratio or margin ratio (expressed as a percentage) when referring to leverage:
Leverage is usually 1: 100 or 1: 200 (in foreign brokers it is written as 100: 1, 200: 1), sometimes expressed as a percentage, 1% or 2%.