How to avoid margin calls
You're not required to have a margin account, and you could easily avoid margin calls by only trading with cash. "The best way to avoid a margin call is to simply not use all your margin limit," says Farrington. Margin is not needed to achieve solid, consistent returns over time, but for those that choose to use it, here are a few things you can do to avoid a margin call:
1. Keep cash on hand. One of the easiest ways to address a margin call is by adding cash to the account. However, if you do not keep enough cash on hand, this may be difficult.
2. Stop loss orders. Entering a stop loss order can help limit losses and, depending on the volatility that day, it could prevent the stock from falling far enough to trigger a margin call.
3. Stay informed. It is a best practice not to check on your investing account on a daily basis; however, this changes with a margin account due to the higher levels of risk. Investors may want to consider adding alerts should the price fall within a certain range.
4. Use your margin limits wisely. Just because you're given the ability to take out a large margin loan doesn't mean that you have to. If you're using margin, consider using less than the maximum amount — this would give you a larger share of equity and a bigger cushion to avoid a margin call.
If you trade with an appropriate amount of leverage, restrict your risk-per-trade to no more than 2%, size your positions appropriately and never open more than a couple of positions at any one time, it is nearly impossible to receive a margin call. Proper risk management is the difference between successful trading and gambling. Perfect risk management and you will be well on the path to becoming a profitable and successful forex trader.
You're not required to have a margin account, and you could easily avoid margin calls by only trading with cash. "The best way to avoid a margin call is to simply not use all your margin limit," says Farrington. Margin is not needed to achieve solid, consistent returns over time, but for those that choose to use it, here are a few things you can do to avoid a margin call:
1. Keep cash on hand. One of the easiest ways to address a margin call is by adding cash to the account. However, if you do not keep enough cash on hand, this may be difficult.
2. Stop loss orders. Entering a stop loss order can help limit losses and, depending on the volatility that day, it could prevent the stock from falling far enough to trigger a margin call.
3. Stay informed. It is a best practice not to check on your investing account on a daily basis; however, this changes with a margin account due to the higher levels of risk. Investors may want to consider adding alerts should the price fall within a certain range.
4. Use your margin limits wisely. Just because you're given the ability to take out a large margin loan doesn't mean that you have to. If you're using margin, consider using less than the maximum amount — this would give you a larger share of equity and a bigger cushion to avoid a margin call.
If you trade with an appropriate amount of leverage, restrict your risk-per-trade to no more than 2%, size your positions appropriately and never open more than a couple of positions at any one time, it is nearly impossible to receive a margin call. Proper risk management is the difference between successful trading and gambling. Perfect risk management and you will be well on the path to becoming a profitable and successful forex trader.