What a margin call is — the idea in plain language
A margin call in forex is a broker’s alert that your account no longer has enough equity to support the positions you currently hold. Equity is the money in your account plus or minus any unrealised profit or loss from open trades. Brokers require a portion of your balance to be reserved as margin while positions are open. When market moves reduce your equity close to that reserved amount, the broker warns you: add funds, reduce positions, or expect automatic closing of trades. In short, a margin call is a signal that your safety buffer is nearly gone and your positions are at risk.
How margin works and the key numbers to watch
Before a margin call can occur, a few related quantities are tracked continuously by your trading platform. The simplest way to think about them is as three moving parts: account balance, used margin, and equity. Your balance is the cash you deposited minus realised P/L. Used margin is the amount the broker has set aside to keep your open trades running. Equity equals your balance plus unrealised (floating) P/L. Free margin is the difference between equity and used margin — it’s the cushion you can afford to lose before trouble starts.
Brokers often show margin level as a percentage calculated like this:
Margin level (%) = (Equity ÷ Used margin) × 100
If your equity falls so that this percentage reaches the broker’s margin-call threshold (many brokers use 100% or a similar value), you’ll receive a margin call. If it falls further to a lower stop‑out level, the broker will usually begin closing positions automatically to protect the account from going negative.
A simple, realistic example
Imagine you have a $1,000 trading account. You open one position that requires $300 margin, so your used margin is $300 and your free margin is $700. At this moment your equity equals the account balance, so margin level is:
(Equity $1,000 ÷ Used margin $300) × 100 = 333%
Now suppose the market moves against you and your open trade shows an unrealised loss of $600. Your equity falls to $400 (balance $1,000 minus $600 unrealised loss). Free margin becomes $100 and margin level becomes:
(Equity $400 ÷ Used margin $300) × 100 = 133%
If your broker’s margin-call threshold is 100%, you are not yet at a call, but you are closer. If losses continue and equity falls to $300, margin level becomes 100% and the broker will trigger a margin call — you’ll typically be blocked from opening new positions and asked to add funds or reduce exposure. If equity drops below the broker’s stop-out level (for example 50%), the broker will start closing trades automatically to reduce used margin.
This example shows how a relatively small position or a few pips of movement can erode equity quickly when leverage is in play.
What brokers do when a margin call happens
Brokers have different rules, but behaviour follows a common pattern. First you get the margin-call warning (platform alert, email, or both). That alert gives you the opportunity to deposit more cash or close some positions to raise equity. If you do nothing and losses continue, the broker enforces the stop‑out policy and begins liquidating open positions—often starting with the largest losers—until the account’s margin requirement is satisfied. Because markets can move fast, automatic liquidations can happen without personal notice and sometimes at worse prices than you would choose.
How to respond to a margin call — step by step
If you receive a margin call the practical options are limited but effective if acted on quickly. The fastest responses are to either add funds to your account, which raises equity immediately, or close one or more positions to reduce used margin. Hedging (opening an opposite position) may reduce exposure in some accounts, but hedging rules vary by broker and can incur costs or fail to work as intended during volatile moves. The safest habit is to treat a margin call as a prompt to reduce risk: deposit only if you have a clear plan and will not chase losses.
Ways traders prevent margin calls
Preventing margin calls is mostly a matter of managing risk before it becomes urgent. Good habits include sensible position sizing, using stop‑loss orders, and keeping a margin buffer rather than risking the whole account. Lowering leverage gives you more room for price movement; monitoring economic calendars and reducing exposure before high‑impact news events reduces the chance of sudden gaps; and avoiding the temptation to add to losing positions preserves free margin. These steps won’t eliminate risk, but they make margin calls far less likely.
Common practical measures many experienced traders use are:
- Keep each trade’s risk small relative to account size, often 1–2% per trade.
- Set and respect stop‑loss levels so a single loss cannot drain most of your margin.
- Maintain a cash buffer in the account so you can survive short drawdowns.
- Monitor your margin level and set custom alerts in your platform to warn you well before the broker’s threshold.
Example: why high leverage brings margin calls faster
Leverage multiplies exposure. With higher leverage you need less money to open a position, but each pip movement represents a larger percentage of your equity. For example, a trader with a small account using 1:200 leverage can open a position size that makes a 10–20 pip adverse move a large percentage loss. That same adverse move with lower leverage would leave more of the free margin intact. The math is simple: less equity cushion + high position size = smaller moves can reach the margin-call threshold.
Risks and important caveats
Trading on margin magnifies both gains and losses. A margin call is a symptom of losses becoming painful enough to threaten the account. Brokers’ margin-call and stop‑out levels vary and are set in their terms; some can increase margin requirements at short notice, especially for exotic pairs or during extreme market stress. Automatic liquidations can lead to slippage: closed trades may execute at worse prices than shown on your chart, especially during fast moves or news events. Negative balance protection is available at some brokers and not at others; don’t assume your broker will absorb losses beyond your account balance. Finally, this article is general information and not personalised trading advice — trading carries risk and you should make decisions that suit your circumstances.
What to do in practice if you’re new
If you are new to forex, use a demo account until you understand how margin, equity, and margin level interact in real time. Practice position sizing so you learn how many pips of movement threaten a margin call at different leverage settings. Read your broker’s margin policy carefully so you understand their margin-call and stop‑out thresholds and notification methods. Above all, treat margin as a safety requirement rather than free money.
Key Takeaways
- A margin call is a broker warning that your equity has fallen close to the funds reserved as margin; act quickly to add funds or reduce exposure.
- Monitor equity, used margin and margin level (%) = (Equity ÷ Used margin) × 100; know your broker’s call and stop‑out thresholds.
- Use sensible position sizes, stop‑losses, lower leverage, and an account buffer to reduce the chance of margin calls.
- Trading carries risk; this is general information, not personalised advice — you can lose more than your initial deposit.
References
- https://www.investopedia.com/terms/m/margincall.asp
- https://www.dominionmarkets.com/margin-call-in-forex-trading/
- https://www.schwab.com/learn/story/what-is-leverage-forex-trading-understanding-forex-margin
- https://www.forex.com/en/news-and-analysis/margin-call/
- https://www.tmgm.com/en/academy/trading-academy/what-is-margin-in-forex
- https://beirmancapital.com/margin-call-forex/
- https://www.vtmarkets.com/discover/a-guide-to-understanding-margin-call-in-forex-trading/
- https://www.tastyfx.com/learn/risk-management/margin-calls/