Forex: Margin Call
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.
Margin calls in action
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.
Forex: Supporting guides and articles
Use our Multi-Currency Forex Margin Calculator which is updated daily to calculate the best forex rate and manipulate forex margin ratio metrics for bespoke Forex Investment results. A popular and powerful free Forex tool.
- Forex Exchange Rate: Exchange rate is the price of one currency in another currency. Exchange rate is also known as the rate of exchange
- Forex Currency Pair: When you deal in the forex market, you deal in currency pairs. You cannot buy an individual currency. Instead you buy units of currency pairs.
- Forex Leverage: Forex leverage refers to investing in the forex market on a credit basis or by using debt.
- Forex Market: Forex or the foreign exchange market is used by people for buying and selling of currencies. The forex market is also known as the currency market.
- Forex Trading: Forex trading refers to the buying and selling of currencies to take advantage of the price movements and volatility of the forex market.
- Forex Margin Call: Margin call is a call from your forex broker when your account balance goes below the maintenance margin.
- Forex Margin Ratio: Forex Trading: Margin ratio is used for expressing the forex leverage in a ratio format.
- Forex Margin Used: Margin used indicates the amount you have actually used in a Forex trade, excluding any leverage.
- Forex Maintenance Margin: Maintenance margin refers to the minimum amount you need to maintain in your forex trading account.
- Forex: Price Interest Points (PIPs): PIPs or Price Interest Points are commonly used by forex traders to indicate profits or losses.
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