In trading, you'll receive a margin call when the amount of equity you hold in your margin account becomes too low to support your trades.
It serves as a key risk management tool to prevent your losses from becoming unmanageable. If you're a retail client, you won't be able to lose more than the amount deposited into your account with us due to negative balance protection rules. Below is an outline of how a margin call works:
If your equity drops below 100% of the required margin, you'll no longer be able to open new trades or place orders. This will be the first margin call warning.
If your equity falls below 75%, you will receive a second margin call. You still won't be able to open new trades or place orders.
If your equity reaches or goes below 50% of the required margin, it means you have reached the minimum allowed margin level, and your trades will be gradually closed out. To avoid being closed out of your positions, you can deposit funds into your account to bring your account off a margin call. Alternatively, you can begin to reduce/close your positions yourself before you reach the 50% level.
For example, if you have opened a position with a margin of $5,000 and your equity is $7,000, then your margin level would be calculated as follows: (7,000/5,000) x 100 = 140%.
If the market moves against you and your equity falls to $2,500, then your margin level would be calculated as follows: ($2,500/$5,000) x 100 = 50%.
However, it’s very important to keep in mind that the 50% closeout can not be guaranteed. More details on this topic can be found here.
Additionally, for an explanation of the important terminology used above, such as ‘’equity’ and ‘margin’, click here.