What is a Margin Call?

A margin call is a term every trader needs to understand, especially when using leverage in trading. It’s a crucial concept in financial markets, indicating that your trading account no longer meets the minimum margin requirements set by your broker. This often happens when your open positions move against you, reducing your account’s equity.

In this article, we will explore the meaning of a margin call, when and why margin calls occur, and how they affect traders in different financial markets such as stocks, Forex, and crypto.

Basics of Margin Call

A margin call at FNmarkets is a warning that your account balance is too low to support your open trades.

Here’s a detailed explanation:

Purpose: It alerts you that you need to deposit more money to keep your trades open as part of risk management.
How It Works: When the value of your account falls below a certain level due to market movements, FNmarkets will notify you. This happens because the money you have left is not enough to cover the margin requirements for your open positions.

Example: If you have $1,000 in your account and you lose $800 in trades, FNmarkets might issue a margin call, asking you to add more funds to cover the remaining $200 margin.

Action Required: To avoid having your positions closed, you need to deposit more funds or close some of your trades to free up margin.
Risks: If you don’t respond to a Margin Call, FNmarkets may automatically close your trades to prevent further losses.

A margin call is a crucial signal to review your positions and ensure you have enough funds to maintain them

What is a Margin Call Based On?

Margin calls are triggered when your account’s equity falls below a certain threshold, known as the maintenance margin. This threshold is based on the broker’s requirements and the amount of leverage you are using.

For example:

• If you are using high leverage in Forex trading, even a small unfavorable price movement can result in a margin call.
• In stock trading, a margin call in stocks occurs when the value of the stocks you hold declines significantly, reducing the overall equity in your account.

When Do Margin Calls Happen?

• A margin call triggers when the equity in a trading account falls below the required minimum margin level. At FNmarkets, a margin call is triggered when the account equity reaches 100% of the required margin.
• When a margin call is triggered, it means that additional funds must be deposited, or some positions may need to be liquidated to meet the minimum margin requirement. Failing to respond to a trigger margin call may result in the forced closure of positions.

What is a Margin Call in Stocks?

A margin call in stocks occurs when the value of the stocks you’ve purchased on margin falls below a certain point. Since stock prices can fluctuate, a margin call ensures that you have enough equity in your account to cover potential losses if the value of the stocks declines significantly.

For example, if you bought stocks with a margin loan and the stock’s value drops, your broker may issue a margin call, requiring you to either add more funds or sell some of your holdings.

What are Margin Calls in Forex Trading?

In Forex trading, margin calls are common due to the high leverage available in this market. Even small changes in exchange rates can have a significant impact on your account’s balance, especially when trading with high leverage.

Leverage in Forex trading can amplify both gains and losses. If a trade goes against you, the equity in your account may drop rapidly, leading to a margin call. To prevent this, it's important to manage your risk by using stop-loss orders and limiting leverage.

How to Cover a Margin Call

There are two main ways to cover a margin call:

Deposit More Funds

• Example: If your broker requires $1,000 margin but your account drops to $700, you can add $300 to meet the requirement.

Close Losing Trades

• Example: You have three trades open. One is losing heavily, while the other two are small winners. By closing the losing trade, your used margin decreases and your margin level improves.

Many traders combine both—depositing a small amount while closing some positions. Acting quickly is important because if the market continues against you, the broker may force-close trades.

How to Avoid a Margin Call

To avoid a margin call and margin issues with FNmarkets, follow these strategies:

• Keep an eye on your margin level to ensure it stays above the required maintenance margin.
• Ensure your free margin is enough to cover potential losses.
• Set stop-loss orders to limit losses and protect your account equity.
• Use lower leverage to reduce the risk of a margin call.
• Spread your investments to mitigate risk from adverse market movements.

Understanding Margin Call and Calculations:

A margin call happens when your margin level falls below the required maintenance margin, usually 100%. It’s important to monitor your margin level to avoid this.

Margin Level Formula:

Margin Level = (Equity × 100) / Margin Used

Where:

• Equity = The balance in your account (Balance ± PnL).
• Margin Used = The amount of margin tied up in your open positions.

Example 1:

If your Equity is $5,000 and Margin Used is $1,000:
Margin Level = (5,000 × 100) / 1,000 = 500%
This is well above 100%, so no margin call is triggered.

However, if your Equity falls to $800 with the same Margin Used of $1,000:

Margin Level = (800 × 100) / 1,000 = 80%

Now, the margin level is below 100%, and a margin call is likely.

Can a Trader Delay Meeting a Margin Call?

Usually, no. Margin calls require immediate action. Brokers do not wait because the market moves quickly.

Example:

• If your account balance falls below requirements during the New York trading session, your broker may send a notification. If you fail to respond quickly (within minutes or hours, depending on the broker), the system may automatically close trades.
• Some brokers give a grace period (e.g., 24 hours), but most retail brokers act fast to protect themselves and traders from going into negative balances.

How Can I Manage the Risks Associated With Trading on Margin?

Managing risk is the most important skill for margin traders.

Smaller Position Sizes

Example: Instead of trading 1 lot of GBP/USD ($100,000), trade 0.1 lots ($10,000). This reduces required margin and exposure.

Avoid High Volatility Events

Example: During U.S. Non-Farm Payroll (NFP) announcements, markets can swing hundreds of pips in seconds. Closing or reducing exposure before such events lowers risk.

Use Take-Profit & Stop-Loss Together

Example: Buy gold at $2,000 with stop-loss at $1,980 (max $20 loss) and take-profit at $2,020 (potential $20 gain). This creates a balanced risk/reward setup.

Don’t Risk More Than 1–2% of Capital

Example: If you have $5,000, don’t risk more than $50–$100 per trade. This way, even a series of losses won’t wipe out your account.

Does the Total Level of Margin Debt Have an Impact on Market Volatility?

Yes, margin debt in the entire market can make price swings bigger.

Example from history:

• In 2008, during the financial crisis, many traders and funds were heavily leveraged. When markets fell, margin calls triggered massive forced selling, which pushed prices even lower.
• Similarly, in 2021, U.S. stock markets saw record-high margin debt. When tech stocks corrected, forced selling amplified the volatility.

This shows that margin debt isn’t just an individual problem—it can affect the whole financial system.

In summary, margin calls happen when your account balance falls below the required level of margin due to market movements or insufficient funds. Once a margin call is issued, you have two options:

• Deposit more funds: You can add additional capital to your account to bring your margin level back up.
• Close positions: If you don’t want to deposit more money, you can close some or all of your open trades to reduce your margin requirement.

Margin call finance systems exist to protect brokers from excessive risk, but traders must understand and manage their margin levels to avoid unexpected liquidations.

FAQs

What is a margin call in simple terms?

A margin call is when your broker asks you to add more money to your trading account because your balance is too low to support your open trades.

What happens if you receive a margin call?

If you receive a margin call, you need to either deposit more funds or close some trades. If you don’t act, your broker may automatically close positions to prevent your account from going negative.

What does a 30% margin call mean?

A 30% margin call means your account equity has fallen to 30% of the required margin. For example, if your required margin is $1,000 and your equity drops to $300, the broker will trigger a margin call.

Can I ignore a margin call?

No, you cannot ignore a margin call. If you do nothing, the broker will likely close some or all of your positions automatically to protect your account from further losses.