How do Margin Calls Work?

How do you define "Margin Call Level" or "Margin Call"? The Margin Call Level occurs in forex trading when the Margin Level reaches a particular level or threshold.

August 04, 2022 - 10:58 AM 505 views

How do Margin Calls Work

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How do you define "Margin Call Level" or "Margin Call"?

The Margin Call Level occurs in forex trading when the Margin Level reaches a particular level or threshold.

When this limit is reached, there is a chance that some or all of your positions could be forced closed (or "liquidated").

The "metric" is the Margin Level, and the "Margin Call Level" is one particular "value" of the metric (which is the Margin Level).

For instance, certain forex brokers offer a 100% Margin Call Level.

In the example given above, a "Margin Call" will take place if the margin level in your account drops to 100% or lower.

How do Margin Calls work?

When your broker alerts you that your margin level has dropped below the necessary minimum level (the "Margin Call Level"), this is referred to as a "margin call."

When your floating losses exceed your used margin, a margin call happens.

Your equity is therefore lower than your used margin (since floating losses reduce your Equity).

When your floating losses exceed your used margin, a margin call happens.

Your equity is therefore lower than your used margin (since floating losses reduce your Equity).

“Margin Call Level” vs. “Margin Call”

The terms "margin call level" and "margin call" are frequently confused by traders.

Your broker will set a "Margin Call Level" that, when reached, will result in a "Margin Call." It is a particular margin level percentage (percent) value. As in the case where the margin level is 100%.

An occasion is a "Margin Call." Your broker acts in some way in response to a margin call. "To send a notification" is the typical action. Only when the Margin Level drops below a specific level does this occurrence take place. The "Margin Call Level" is this value.

Temperature is the equivalent of the Margin Level. There are many other temperature ranges, including 0° C, 47° C, 89° C, etc.

The Margin Call Level is a specified temperature equal to 100° C.

A margin call is comparable to water boiling, which is the process through which a liquid turns into a vapour.

Example: Margin Call Level at 100%

Let's assume that your forex broker has set the Margin Call Level to 100%.

This means that if your margin level rises to 100%, your trading platform will notify you with a warning message.

Margin Call Level = Margin Level @ 100%

You will be unable to create any new positions once your account's margin level hits 100%; instead, you will only be allowed to close existing positions.

If your equity is equal to or less than your used margin, your margin call level is at 100%.

This happens as a result of your open positions' increasing floating losses.

Consider opening a EUR/USD position with 1 mini lot (10 000 units) and a $200 Required Margin using a $1,000 account.

Only one position is open, so the used margin will likewise be $200. (same as Required Margin).

You're still terrible at trading at this point, so your trade immediately starts losing money.

It is drastically losing. You're terrible at trading.

Your current loss is 800 PIP.

You now have a floating loss of $800 at $1/pip!

Thus, your Equity has increased to $200.

Equity = Balance + Floating P/L

$200 = $1000 - $800

Your margin level is currently 100%.

Margin Level = (Equity / Used Margin) x 100%

100% = ($200 / $200) x 100%

You won't be allowed to initiate any new positions if the margin level hits 100% unless:

The market turns around once more in your favour.

When your equity exceeds your used margin.

The only way for #2 to occur if #1 doesn't take place is if you: Add additional money to your account.

Terminate any open positions.

Up till the Margin Level rises to a level above 100%, the account won't be able to create any new trades.

Add additional money to your account.

·      Terminate any open positions.

·    Up till the Margin Level rises to a level above 100%, the account won't be able to create any new trades.

What happens if your terrible trade keeps working against you?

If this occurs, the broker will be compelled to close your position after your margin level drops any more to ANOTHER set level.

The Stop Out Level, which varies by broker, is the other particular level.

A Stop Out event is comparable to getting burned by boiling water if a Margin Call event is like water boiling.

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