What is a Margin Call?

The forex market is the most volatile market in the world. This is because it deals in currencies of different countries, which make it highly liquid. As a result of this, investors tend make substantial profits in seconds and lose all the money minutes later. When a trader loses money, his account equity falls below the margin needed to maintain the account. This rings an alarm bell for the broker, warning him about the impending loss. The broker gives a call to the investor to bring up the margin account to the minimum maintenance margin by using the margin to deposit additional money. This action of the broker is called the ‘forex margin call’, also referred to as a ‘maintenance call’ or ‘fed call.’

Forex Margin Call: Calculation of ‘Usable Margin’ and ‘Equity’

When a trader opens a margin account, he uses leverage to trade. Limits may vary from broker to broker. Margin is a high-risk strategy, which if handled perfectly, can yield huge profits for a trader. However, margin may also make a trader go bankrupt. A trader can check his usable margin and used margin by accessing the "Account Information" window of the online trading platform offered by his broker.

Usable margin is the difference between Equity and Used Margin.

Usable Margin = Equity – Used Margin

Your Equity is also the determining factor behind a Margin Call. That is to say you will not get a margin call till your equity is greater than the used margin and vice versa.

Equity > Used Margin = No Margin Call

Equity =/< margin =" Margin">

For instance, a margin call will occur when a trader has 10 lots of open positions and his account equity falls below $5,000. This will result in immediate closure of some or all of his open positions at current prices.

How Can a Trader Avoid a Margin call?

It is crucial to carry out detailed research to understand margin and save your assets. Here are some simple tips to avoid getting a margin call:

• Implement good money management skills.


• If you do not have adequate margin, stop loss should be used for every position.


• Over trading should be avoided.

Undertaking due diligence gives you an edge over many other traders, by putting you in a better position of knowledge.