What's Margin Call Meaning? - Margin Call Explained - Margin Call Example
What Happens When Free Margin is Negative? - What Happens When Your Free Margin Runs Out?
A margin call is when a trader's account free margin goes below required margin level that's set by broker. This means because free margin in trader's account has dropped below required margin level then the trader receives a margin call and some of the open trade transactions in trader's are closed by broker til this margin level moves back up to above required margin trading level.
Some of the open trade transactions may be closed or all of the open trade transactions may be closed if this margin call is automatically executed by broker.
What is Margin Requirement Level?
Now if Your Leverage is 100:1
When trading if you have $1,000 & use leverage of 100:1 and buy 1 standard lot for $100,000 your margin on this trade is $1000 dollars in your account, this is the money that you will lose is your open trade moves against you the other $99,000 that is borrowed, broker will close out the open trade transactions automatically using a Margin Call once your $1,000 has been taken out by market.
But this is if your broker has set 0 percent Margin Requirement before liquidating your trade transactions automatically using this Margin Call.
What is 20 % Margin Requirement Level?
For 20 % margin requirement before liquidating your trade transactions automatically using what is referred to as Margin Call, then your trades will be closed once your account balance gets to $200 - at $200 you'll get a margin call.
What is 50 percent Margin Requirement Level?
For 50 percent requisite of this level before closing your trades automatically using what is referred to as margin call, then your trades will be stopped out once your trading account balance reaches $500 - at $500 you will get a margin call.
What is 100 Percent Margin Requirement Level?
If broker sets 100% margin requirement of this level before stopping out your open trade transactions automatically using a Margin Call - at $1,000 you'll get a margin call, then your trade transactions will be stopped out once your trading account balance reaches $1,000: Meaning the trade transactions will liquidate as soon as you as a trader execute a one standard lot on this trading account because even if you pay $10 spreads your account balance will get to $990 & the needed margin requirement percent is 100 Percent that's $1,000, hence your open trade orders will immediately get closed using a Margin Call once your margin requirement falls below 100 %.
Most brokers don't set 100 % margin requirement, but there are those brokers that set 100 % trading margin requirement level aren't suitable for you at all, even those brokers that set 50% margin requirement level are still not suitable. Select those brokers set a 20% margin percent level requirement, in fact, the brokers that set it at 20 % Margin Requirement are the best since due to the likely hood that they stop-out your open trade using a Margin Call is reduced as shown in the example above.
To Learn More about Leverage and Margin - Read the Learn Topics Below:
Leverage and Margin Described
