May I Know The Meaning of Margin Call in Forex?

A margin call is basically a warning from your broker signaling that you need to deposit more money into your trading account because your Margin Level has fallen below 100%.

When your Margin Level falls below 100%, it means your free margin is finished and any further losses will begin to deplete your initial margin which was locked up as collateral.

If you are not able to deposit more funds you better hope your trades become profitable because if they don't, your broker has a tolerance limit called the stop-out level so once your margin level falls to this stop-out level, all your trades will be forcibly closed starting from the least profitable ones.

Example if your broker has a 20% stop-out level, then once your margin level falls to 20%, all your trades will be closed automatically.

The weird thing about margin calls is that unlike the name, you do not actually get a phone call (except you are a VIP customer trading thousands of dollars). Instead, on MetaTrader platforms, the margin call comes in form a blinking red light at the bottom of your toolbox.

When trading, I always keep an eye on my margin level because the more trades you open, the more your margin level gets lower.

The ideal margin level is above 100%, so you must always ensure it stays above 100% by either depositing more funds, or closing unprofitable trades etc.

From my understanding, a margin call is an emergency request for you to fund your trading account so as to bring your margin level above 100%.

What can cause your margin level to fall below 100%? It could be that you have opened too many trades and they are recording losses or the single trade you opened is in a massive loss.

Margin Level = (Equity/Margin) x 100

So, if my Account balance is $100, and margin required to open a trade is $20 then Margin Level becomes ($80/$20) x 100 = 400%

Your margin level is healthy is if stays above 100% so with a margin level of 400% I am at low risk of receiving a margin call.

However, if I open a second trade that requires a $25 margin then my equity falls to ($80 - $25) = $55 and used margin increases to ($20 + $25) = $45

My margin level becomes ($55/$45) x 100 = 122%

With a 122% margin level I am still safe but if I keep opening more trades (or recording more losses) and the margin level dips below 100% then I am in trouble and might receive a margin call at any time, depending on my brokers tolerance.

When opening a trading account with a broker, always take note of the margin call and stop out levels.

If a broker says their margin call level is 20% then you will receive a notification (through email, sms etc) to deposit funds when your margin level falls to 20%.

If a broker says their stop out level is 0% then they will et your trade keep running till you blow your account and your balance becomes zero; usually I avoid such brokers who have 0% stop out level because it means they are high risk.

A margin call is like a low fuel warning in a car. Your margin level is the fuel guage while the margin call is the orange light that comes on when your fuel is near empty.

A margin call is your broker putting you on notice that the your losses will soon exceed your remaining account balance. When you receive a margin call there are a few things you can do; you can either deposit more money into your trading account, or you if you have multiple trades open you close the most unprofitable ones to free up more margin.