A margin call is a term used to describe the alert sent to a trader to notify them that the capital in their account has fallen below the minimum amount needed to keep a position open.
A margin call can mean that the trader has to put up additional funds to balance the account, or close positions to reduce the maintenance margin required.
A margin call can also be used to describe the status of your account, as being “on margin call” because the funds in your account are below the margin requirement.
The term “margin call” came from the practice of brokers calling their clients to notify them of the account deficit. Nowadays, margin calls are delivered by email.
In forex trading, there are two types of margin:
- A deposit or initial margin that’s needed to open the position
- A maintenance margin that’s needed to keep the position open.
It is the failure to uphold the latter that will trigger a margin call.
If a trade starts to lose money, the cash in your account may no longer be enough to keep the position open and your broker will notify you to deposit more cash in your account in order to bring your balance up to the minimum margin.
This notification is a margin call.
If you add more cash, the position will remain open.
If not, your positions will be closed, and any losses and incurred will be realized.
“Margin Call Level” vs. “Margin Call”
Traders tend to get confused between a Margin Call Level and a Margin Call.
- A “Margin Call Level” is a threshold set by your broker that will trigger a “Margin Call”. It is a specific percentage (%) value of the Margin Level. For example, when the Margin Level is 100%.
- A “Margin Call” is an event. When a Margin Call occurs, your broker takes some sort of action. Usually, the action is “to send a notification”. This event only occurs when the Margin Level falls below a certain value. This value is the “Margin Call Level”.