Forex Money Management

Learn to control risks in trade. Forex smart money management

Margin and Margin Call in Forex

While Forex brokers allow traders to trade money ten times more than what's been actually invested, brokers always know that traders never lose money beyond their real investments. The warranty here is Margin.

Margin in Forex identifies a requirement for the trading account to have certain amount of real funds on balance as a collateral to cover any possible losses.

In other words, a margin prevents traders from losing virtual money (the money they don't have).
Margin makes sure that while having trading positions open, traders have just enough real money on balance to cover losses if they are to occur.

Margin requirements vary from broker to broker. Most Forex brokers require 0.5% to 10% margin depending on the leverage chosen.

Example: Leverage — Margin table

So, at 20:1 leverage a trader required to have 5% of the value of each open position in the account intact. This equals to $500 on hold per each lot of 10 000 units. ($10 000 * 5% = $500)

Available margin, Free margin, Usable margin — all are the synonyms used by different Forex brokers — regulate the allowance for your trading appetite:

A trader can not open trading positions which exceed Available margin; and/or keep old positions running if Available margin is drained out = equals 0.

In case a trader uses the entire Available margin he will get a Margin call.

Maintenance margin, Required margin, Used margin — also are synonyms, which suggest funds that are in use, currently locked in order to "maintain" currently open trades.

In other words, Margin call occur when due to losses trader's Account Equity (balance + the total of all floating profit/losses) becomes equal to Used margin value and/or slips slightly beyond it.

Margin call simply means that all or a certain part of open trades will be closed in order to prevent further losses beyond account balance.

No trader ever wants to receive a margin call and have running trades closed despite his/her will.
That's why traders try monitoring their account parameters as they trade.
When Margin call situation seems to be inevitable, a trader may try to prevent it by either adding more funds to the account, or closing few losing trades at own choice, or change account leverage to a higher one (with higher leverage Margin requirements will be lowered).