Margin Call
Definition
A margin call occurs when losses on leveraged trades reduce your available margin to a level the broker considers unsafe. It is a warning that your account no longer has sufficient buffer to support open positions. If action is not taken quickly, the broker may automatically close trades, often at unfavourable prices.
In Plain English
In plain terms, a margin call is the broker telling you that your account does not have enough available funds to keep your leveraged positions open. This usually happens after losses reduce your free margin. You may be asked to add funds, reduce exposure, or accept that positions will be closed automatically.
How It Works
- You open one or more leveraged trades using margin.
- As the market moves, your account equity rises or falls with unrealised profits and losses.
- If losses reduce your free margin below a predefined threshold, the broker triggers a margin call.
- The margin call level is typically expressed as a percentage of equity relative to used margin.
- Once a margin call occurs, the broker may notify you via the platform, email, or app notification.
- If equity continues to fall, the broker reaches a stop-out level and begins closing positions automatically.
- The order and speed of position closures depend on the broker’s internal risk rules and execution conditions.
Why This Matters for Traders
Margin calls are a practical limit on how long a leveraged position can be held during adverse price movements. Even if a trade thesis is still valid, insufficient margin can force an early exit. This makes margin calls especially relevant for volatile markets, overnight positions, and strategies that rely on wider stop-losses or longer holding periods.
Common Misunderstandings
- A margin call is optional: in practice, brokers can close positions automatically without waiting for action.
- Margin calls always provide advance notice: some brokers move straight to stop-out if conditions deteriorate quickly.
- Only high leverage leads to margin calls: moderate leverage combined with volatility can also trigger them.
- Margin calls are rare events: they are common during fast markets, gaps, and unexpected news.
- All brokers handle margin calls the same way: thresholds, notifications, and close-out logic vary widely.
How This Affects Broker Choice
Margin call handling is a critical but often overlooked broker-selection factor. When comparing brokers, users should assess:
• The margin call level and stop-out level (for example, at 100% and 50% equity).
• Whether margin calls are warnings only or trigger immediate restrictions.
• How transparently margin metrics are displayed in the platform.
• Whether the broker closes positions gradually or all at once.
• The presence of negative balance protection.
From a comparison and monetisation standpoint, margin-call policies often separate risk-managed, regulated brokers from lightly regulated platforms. Clear explanations here naturally support links to broker reviews and side-by-side comparisons of risk controls.
Risks & Common Mistakes
• Running accounts with minimal free margin, leaving no buffer for normal price swings.
• Assuming margin calls will always allow time to add funds.
• Ignoring how spread widening and slippage accelerate margin depletion.
• Holding multiple correlated positions that increase simultaneous margin pressure.
• Choosing brokers with aggressive or poorly disclosed stop-out rules.
Risk note: during fast or gapping markets, positions may be closed at worse prices than expected, increasing realised losses.
Real-World Example
You deposit £3,000 and open leveraged positions requiring £1,500 in margin.
• A series of adverse market moves reduces your equity to £1,700.
• Free margin falls sharply, and the broker triggers a margin call.
If the market continues to move against you and equity drops further, the broker reaches its stop-out level and automatically closes positions to limit risk. You may not be able to choose which positions close or the execution price.
What to Check Before Trading
- At what equity level does the broker issue a margin call?
- At what level does automatic stop-out occur?
- How are margin calls communicated (platform alerts, email, app)?
- Does the broker close positions incrementally or all at once?
- How do margin call rules change during volatility or illiquid periods?
- Is negative balance protection in place?
- Are margin-call terms clearly documented and easy to verify?
Related Concepts
Margin defines the collateral base that determines when a margin call is triggered.
The stop-out level determines when positions are forcibly closed after a margin call.
Higher leverage reduces the margin buffer and increases the likelihood of margin calls.
Free margin shows how much capacity remains before a margin call is reached.
This limits losses after forced closures, especially during extreme market moves.
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