A margin call happens when a trading account no longer has enough money to support the open trades. This happens when there are too many floating losses.
Your Forex account is set-up on a default margin on 1% (approximately 100:1 leverage). Meaning, you must maintain in excess of £1,000 in the account for every standard lot (100,000 contract position) that is open on the trading account (£1,000 is 1% of 100,000).
What Causes A Margin Call In Forex Trading?
If for example, you are trading 1 standard Lot with GBP as the base currency and your account is £1,000 GBP. You have a 100:1 leverage. This means you need as a minimum your £1,000 as your margin.
Once you have opened your trade and as it is trading the currencies spike against you and all of a sudden your margin is showing as £50 or less, at this point the broker will either contact you or make the call to close the trade.
This limits the brokers risk because you have deposited £1,000 and your losses of £950 are covered. It can also be beneficial to you because if you are letting your losses run too long hoping it will turn around you could lose a lot of money, which you might not have.
Without Proper Risk Management, This High Degree Of Leverage Can Lead To Large Losses As Well As Gains
The strategies that I will teach you in my Forex trading course can either use lots of margin, or little. You will start your trading using a 2% rule – meaning that you use little to no margin and your losses are calculated and controlled.
Once you are confident and more advanced you can adopt leverage using positions and start to use the power of leverage to amplify your profits – obviously it depends on your risk appetite.
If You Want to Become a Successful Forex Trader, You Must Join AndyW Club.