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.
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