If you trade Forex, a margin call is when your account equity falls below the required amount.
A margin account allows you to purchase Forex currencies using a combination of cash or collateral. This is often financed with credit and is called leverage. Different brokers have different limits on leverage.
Margin trading is not the same as gambling, although they share some similarities. Trading on margin can be high risk, but it can also yield high rewards if done correctly. However, if you don’t know what you’re doing, it can also lead to significant losses.
Research is essential when it comes to any investment, including margin trading. For example, if a client has 10 open positions and their account equity falls below $5,000, a margin call will be triggered. This means that some or all of the positions will be closed immediately at current market prices.
Traders can monitor their usable margin and used margin from the “Account Information” window in their online trading platform. If usable margin drops below zero, positions will automatically close.
Traders can avoid margin calls by using stop loss orders or maintaining sufficient funds in their account.
Most brokers have a minimum account size or initial margin, such as $5,000-$10,000. Once you have deposited the required amount, you can start trading.
So, can a margin call hurt you? Yes, it can. If your position is in danger, your broker may ask you to deposit more money or close your position to limit your risk and theirs. Automatic stop loss can also be used to automatically cut a position when losses approach a certain point.
Weekend trading has reduced leverage to protect clients from potential price swings during market closure.
To avoid margin calls, follow these common-sense tips:
1. Practice good money management
2. Use stop loss orders when your margin is insufficient
3. Don’t over trade
Hopefully, this article has made you aware of the potential risks and pitfalls of trading on margin. Remember to do your research and be informed before making any investment.
Automated Forex Systems are an option in the market. Always compare features of different systems before making a decision.