Trading conceptsUpdated 2 min readBy the FXNOD team
What is a margin call?
A margin call is a warning from your broker that losses on open leveraged positions have reduced your account to the point where it barely covers the margin those positions need. If the losses continue, the broker closes positions automatically at the stop-out level. A margin call is not a request you can ignore: it is the last stage before forced closure.
The terms
| Term | Meaning |
|---|---|
| Balance | Your money, not counting open positions |
| Equity | Balance plus or minus the profit or loss on open positions |
| Used margin | The deposit set aside to hold open positions |
| Free margin | Equity minus used margin: what is left for new trades and losses |
| Margin level | Equity divided by used margin, as a percentage |
| Margin call level | The margin level at which the broker warns you |
| Stop-out level | The margin level at which the broker starts closing positions |
A worked example
You deposit 1,000 and open a position needing 200 of margin. Equity is 1,000, so the margin level is 500%. The trade goes against you by 800: equity is now 200 and the margin level is 100%. If your broker's margin call level is 100%, you are warned. If the stop-out level is 50%, the position is closed when equity falls to 100. The exact percentages are set by each broker.
What a stop out does
- The broker closes positions, usually the largest loser first, until the margin level recovers.
- It happens at market prices, which in a fast market can be worse than the level.
- It is automatic. Nobody phones you.
- Closing at the worst moment is the usual result.
How to avoid it
- Use a stop loss on every position, far before the margin level matters.
- Risk a small fixed fraction of the account per trade.
- Keep the margin level in the thousands of per cent, not the hundreds.
- Do not add to losing positions.
- Do not deposit more to save a trade. That is a second loss, not a rescue.
If you get one
You have two honest choices: close some or all of the position, or accept that it may be closed for you. Adding funds only buys time, and only helps if the trade was right and merely early. Decide which it is before you transfer anything.
Products without margin calls
A fixed-payout option cannot get a margin call: you paid the stake and that is the whole risk. A multiplier is closed at its stop-out price when the loss equals the stake. FXNOD's tools trade those products, not margined CFDs.
Questions people ask
- What triggers a margin call?
- Your margin level falling to the broker's margin call level, because losses on open positions have reduced your equity.
- What is the difference between a margin call and a stop out?
- A margin call is the warning. A stop out is the broker closing your positions.
- Can I avoid a margin call by depositing more?
- Depositing raises the margin level. It does not fix the trade, and often just increases the eventual loss.
Try it without risking money
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