What's a margin call

View previous topic View next topic Go down

What's a margin call

Post  ilearn2t on Sat Apr 07, 2012 9:49 am

Hello Everyone

A margin call is when your "Equity" falls below the margin, the broker will issue a margin call. Traders can either close out their positions and add more funds to their account, or risk bankrupting the account if the trend keeps going against them.

Example:

You deposit $2,000, and your trades loss $1,500, the equity in your account falls to $500 and assuming the requirement is 25%, you must have $375 Equity in your account (25% of $1,500 = $375). you're still be ok in this situation as the $500 worth of equity in your account to avoid a margin call at $375. But let's say the requirement of your broker is 40% instead of 25%. In this case, your equity of $500 is less than the margin call of $600 (40% of $1,500 = $600). As a result, the broker may issue you a margin call.

In this situation the darker gray row containing your "Balance" "Equity" "Margin" etc will show "Pink" as your account burns itself out.

Traders might believe by keeping a Buy and Sell on the same pair it will freeze a tight limit on the account until more funds can be added, but you can also get a margin call even if you're using 100% hedging, since swap and/or the possibility of spreads widen, causing the remaining margin in the account to diminish. Should the remaining margin be insufficient to maintain any open positions, the account may sustain a margin call, closing your open orders one at a time to stay above margin call limit, but this could still lead to the account failing.

Some if not all brokers charge a fee for "Swap Free" accounts also "Fix" spread are not written in stone.

Example: holiday periods when your spread might increase by 10 times or more. So check with your broker before joining.

Good luck
ilearn2t
avatar
ilearn2t
Admin
Admin

Posts : 293
Join date : 2011-12-07

http://forex4newbies.forumotion.co.uk

Back to top Go down

View previous topic View next topic Back to top

- Similar topics

 
Permissions in this forum:
You cannot reply to topics in this forum