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Margin call is a call from your forex broker when your account balance goes below the maintenance margin.
Whilst your brokerage will provide you leverage, you will always have to maintain a minimum balance in your forex account. This minimum balance amount is known as the maintenance margin, and it varies by brokers. The maintenance margin can be anywhere between 25-40%. If the balance in your forex account goes below the required maintenance margin, you will get a margin call from your broker.
Example: Let's say you have purchased 100 units of the USD-CHF currency pair, valued at CHF 96.229 (each pair costing 0.96229). Your broker has given a margin ratio of 10:1 and your margin used in the transaction is 9.6229. If the broker has set a maintenance margin of 100%, at any point of the trade you will be required to maintain 100% of CHF 9.6229. Suppose the price of the currency pair drops, this means your margin used will be lower than the required 9.6229.
In such a scenario, you will get a margin call from your broker requesting you to deposit the remaining amount. Or at times, the broker may even sell a few units from your portfolio to get the account balance back to minimum levels.
Trading on leverage is risky and has the potential to cause huge losses to traders. All forex traders will have a few horror stories on how they lost money due to leverage. Margin calls are aimed to ensure that investors don't lose more money than their original investment or margin used.
Use our Forex margin calculator to calculate the margin used.
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