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What is a Margin Call?

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  • mlawson71
    replied
    Thank you for the explanation, newbies will likely find it helpful.

    Leave a comment:


  • skrimon
    started a topic What is a Margin Call?

    What is a Margin Call?

    When you open a margin account and use leverage, your broker will require you to maintain your account. The margin you use to open trade can change because the profits and losses increase for each transaction.

    If you trade, and the exchange rate moves against you, your broker will ask you to have enough capital in your account to meet the new margin requirements.

    If your trade is underwater, your broker will start charging you for the loan losses you get, on top of the money you used to initially trade. This is called the maintenance margin.

    For example, if you borrow $ 9,500 to buy $ 10,000 from EUR / USD and the trade value decreases to $ 9,500, you have to pay interest at $ 9,500 initially and an additional interest of $ 500.

    If the equity in your account drops below the maintenance margin level, your broker will generate a margin call.

    This is a warning to you that you have a certain number of days, to deposit additional capital in your account.

    If you do not meet the margin requirements after the margin call, your broker has the right to liquidate your position.

    Before making a transaction with your first leverage, you must find out what margin requirements are related to margin calls.

    Because you have the potential to lose more money in your account that was originally paid for, the requirement to open an account is generally strict.

    Your broker wants to make sure you understand how the process works before you start taking capital risks on Forex investments.

    They also want to understand the broker's rights and what will happen if you do not comply with the margin call. If a broker liquidates your position to meet the margin call, they will not try to get out at the best exchange rate.

    They will sell your position on the market and you will be subject to slippage from the liquidation of trading.

    Your broker will post the amount of margin currently used on the trade, as well as the total available. You might see a term called "used margin" and "available margin", in your account balance.

    The amount of margin needed determines the maximum leverage in your account. For example, if you are required to send a 5% margin, the leverage you can generate is 20:

    1. When the margin requirements decrease, leverage increases.

    When the margin requirements decrease, leverage increases.

    MARGIN REQUIREMENT LEVERAGE

    5% 20:1

    2% 50:1

    1% 100:1

    0.5% 200:1

    0.25% 400:1

    0.20% 500:1



    High levels of margin are generally granted by reputable brokers such as Multibank. By using well-known platforms such as MT4 and Mt5, Multibank can offer leverage up to 500:1 on liquid currency pairs:

    Your margin-based leverage is the total transaction value divided by the required margin. For example, if you place a EUR / USD trade that has a notional value of $ 10,000, and the required margin is $ 500, then your margin-based leverage is 20: 1.

    There is a theory that some people deny that margin increases the amount of capital you want to raise. Just because you can control more capital does not mean you are willing to lose more money.

    Even if you only have to post 2% of the trade value, it doesn't prevent you from adding more money to your account if one of your trades moves against you.

    This means that your risk is more a function of real leverage than margin leverage. Your real leverage is the amount you can leverage based on your discretionary capital.

    You will calculate real leverage by dividing the average margin requirements with your discretionary capital.

    For example, if you are willing to risk $ 10,000 in forex trading, your real leverage using a 5% margin is $ 200,000 ($ 10,000 / 5%).

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