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Understanding the Margin Call

  • #21
  • Sep 22, 2006 11:41am Sep 22, 2006 11:41am
Quoting mkkr
IBFX does the margin call when your EQUITY reaches 50% Not your margin balance. which means you lose more money. (believe it or not I like it that way)
As stated previously...it varies by broker. IBFX has a more restrictive rule. They just want to keep you trading...and you can't trade if you don't have money.
  • #22
  • Sep 25, 2006 6:11pm Sep 25, 2006 6:11pm
As mrmikal stated, it definitely depends on your broker. For example:

IBFX's Policy: If Margin level drops below 50%, IBFX will begin randomly closing open positions until Margin level goes above 50%.

FXDD's Policy: If Margin level drops below 80%, all open positions will be closed.

So, it's not a case of Margin balance as it is Margin level. But you just need to check with your broker.

Quoting mrmikal
As stated previously...it varies by broker. IBFX has a more restrictive rule. They just want to keep you trading...and you can't trade if you don't have money.
  • #23
  • Oct 16, 2006 2:59pm Oct 16, 2006 2:59pm
Quoting dscott5912
As mrmikal stated, it definitely depends on your broker. For example:

IBFX's Policy: If Margin level drops below 50%, IBFX will begin randomly closing open positions until Margin level goes above 50%.

FXDD's Policy: If Margin level drops below 80%, all open positions will be closed.

So, it's not a case of Margin balance as it is Margin level. But you just need to check with your broker.
I wanted to bump this thread only because I got clarification from FXDD about how they do margin calls (if anyone is interested).

As stated above, they state that if your MARGIN LEVEL drops below 80%, then your open positions will be liquidated. To them, MARGIN LEVEL is how much margin you have put up in positions...

So, let's take an easy example...say you have $5,000 USD in your standard account (100:1 margin) and you take out a 1 standard lot of the USD/JPY (margin of $1,000 required).

Your MARGIN LEVEL at break-even is 500% (because the margin required is $1,000 and you have $5,000 in your account). In order to get to 80% MARGIN LEVEL, your 1 standard lot position has to LOSE $4,200 before it is liquidated ($1,000 is the required margin and 80% of $1,000 is $800. $5,000 - $800 = $4,200).

I have not qualified this with Interbank FX, but MARGIN LEVEL seems to be a Meta Trader term.
  • #24
  • Oct 16, 2006 5:31pm Oct 16, 2006 5:31pm
Quoting mrmikal

As stated above, they state that if your MARGIN LEVEL drops below 80%, then your open positions will be liquidated. To them, MARGIN LEVEL is how much margin you have put up in positions...
Wow. I suppose I am not alone amongst the Old Fart Futures Traders when I say my mental calc = 75% for Maint Marg.

Little tougher game in Fx...
  • #25
  • Oct 18, 2006 12:03am Oct 18, 2006 12:03am
Quoting mrmikal
I wanted to bump this thread only because I got clarification from FXDD about how they do margin calls (if anyone is interested).

As stated above, they state that if your MARGIN LEVEL drops below 80%, then your open positions will be liquidated. To them, MARGIN LEVEL is how much margin you have put up in positions...

So, let's take an easy example...say you have $5,000 USD in your standard account (100:1 margin) and you take out a 1 standard lot of the USD/JPY (margin of $1,000 required).

Your MARGIN LEVEL at break-even is 500% (because the margin required is $1,000 and you have $5,000 in your account). In order to get to 80% MARGIN LEVEL, your 1 standard lot position has to LOSE $4,200 before it is liquidated ($1,000 is the required margin and 80% of $1,000 is $800. $5,000 - $800 = $4,200).

I have not qualified this with Interbank FX, but MARGIN LEVEL seems to be a Meta Trader term.
Here's a formula that is used to figure out Margin Level...

Account Equity / Margin = Margin Level

Margin Level is something that is used with MT4 brokers.

I have personally contacted FXDD and IBFX, so I guarantee the information posted here is accurate... at least until they change their policy.
  • #26
  • Oct 18, 2006 12:10am Oct 18, 2006 12:10am
Let me illustrate to you what a margin call at least feels like:

http://www.forexfactory.com/forexfor...46&postcount=1
Mr. Trend
  • #27
  • Oct 18, 2006 4:55am Oct 18, 2006 4:55am
Quoting mrmikal
So, let's take an easy example...say you have $5,000 USD in your standard account (100:1 margin) and you take out a 1 standard lot of the USD/JPY (margin of $1,000 required).
Just some clarification for me, please. In this example I take it that you have a 20% risk on this trade?
Quote
Your MARGIN LEVEL at break-even is 500% (because the margin required is $1,000 and you have $5,000 in your account). In order to get to 80% MARGIN LEVEL, your 1 standard lot position has to LOSE $4,200 before it is liquidated ($1,000 is the required margin and 80% of $1,000 is $800. $5,000 - $800 = $4,200).
So, if the trade goes more that 4 pips against you your position is closed by the broker?
I assume this is why I've read advice to only trade micro lots on this size of account and keep to 1% - 2% risk per trade(s)?
This post is for my clarification only, and not any criticism of the points raised
  • #28
  • Oct 19, 2006 9:24am Oct 19, 2006 9:24am
Quoting PeterFM
Just some clarification for me, please. In this example I take it that you have a 20% risk on this trade?So, if the trade goes more that 4 pips against you your position is closed by the broker?
I assume this is why I've read advice to only trade micro lots on this size of account and keep to 1% - 2% risk per trade(s)?
This post is for my clarification only, and not any criticism of the points raised
Peter, It's really quite simple...the trade has to go $4200 USD against you before it gets closed out. If you want a real world calculation that's between 467 and 525 pips that the USD/JPY has to go against you before you get a margin call.

Remember, $1000 is the margin requirement for 1 standard lot at 100:1. If you have $5000, your margin level is 500% at break even...at $4000 (a loss of $1000) your margin level is at 400%...at $2000 (a loss of $3000) your margin level is at 200%...at $1000 (a loss of $4000) your margin level is at 100%...at $800 (a loss of $4200) your margin level is at 80%.

Any questions?
  • #29
  • Jan 23, 2009 6:26am Jan 23, 2009 6:26am
i just spoke to someone on ibfx livechat, who informed me they start liquidating your most losing trades first when your margin is more than 50% of your total equity. They will continue doing this until your margin is below 50% again. Every broker is different, so make sure you know your broker's policy.
  • #30
  • Jan 24, 2009 3:00am Jan 24, 2009 3:00am
Different platforms and examples:

Quote
As listed in our terms and conditions: At Margin level less than 10% the Company has a discretionary right to begin closing positions starting from most unprofitable. If Margin level is equal or less than 5%, all positions are automatically closed at market price.
(FxPro FAQs - Margin Call/Stop Out?)

Example:
You have a $1000 account (MT4). You open two trades of 4 mini-lots (0,4 lots) each at 200:1 leverage which requires $400 margin as a total (200+200). The trades are at breakeven (PL = 0.00). Your equity is $1000. Your margin (used margin) is $400. Your free margin is $600. Your margin level is 250% (equity/margin = 1000/400).

Your equity falls to $400. Your free margin is 0.
Your margin level is then at 100%.
Your equity keeps falling. When it reaches $40, your margin level is at 10%. The broker has then the right to begin closing positions so to keep the margin level over 10%. If it keeps falling and reaches $20, where your margin level is at 5%, you get the margin call and all your positions are closed. Your new account balance is $20 or less if in the closing process the price has kept moving against you (slippage).

Oanda's margin rules are explained in detail here :
Quote
An FXTrade account will receive a margin call when the margin required becomes twice the Net Asset Value of the account (or, in other words, if the margin required divided by two becomes larger than the net asset value of the account). A margin call results in an automatic closing of all open positions.
Example:
Same $1000 account. You open a trade of 10000 units (0,1 lots) at 50:1 leverage, which will require (I'll round the numbers for easier calculations) $260. The Net Asset Value of the account is now $1000-$260 = $740. The Margin Call amount margin required divided by two) is $130. As soon as your Net Asset Value falls below $130 your positions are liquidated. Your new balance will be $130 or less depending on how much the price has moved against you meanwhile the closing process occurs.

On both examples above, the margin requirement depends on the actual price of the currency pair. On the first one, 200:1 leverage means price divided by two and multiplied by 100 (on a mini-lot - 10000 units or USD -, EURUSD at 1.30 would mean a $65 margin requirement = ((1.30*10000)/200)*1). On the second one, at 50:1 leverage, you have to multiply the price by two and again by 100 (on a mini-lot or 10000 units, EUR USD at 1.30 would require $260 ((1.30*10000)/50)*1).

At Marketiva, the margin requirement is a fixed amount, with leverage at 100:1. You always are required $1 for every $100 traded, that is $100 for a mini-lot or $10000, etc.

Here it is a little different, as your positions are liquidated as soon as your free equity reaches 0. You keep the amount of the margin that was on hold.

Example:
Same $1000 account. You open a trade that requires $300 margin.
You still have $700 free equity (available margin). When the free equity reaches 0, your positions are liquidated and your new account balance is $300. However, there can also be some slippage then, depending on the volatility at the moment of the closure.

Hope it helps. If something isn't clear enough, please let me know.
  • #31
  • Oct 20, 2010 5:51am Oct 20, 2010 5:51am
I have got this far leaning from baby.pips site only to discover that I dont understand their explanation about leverage and margin call. Then on top of that somehow the Spread becomes a factor in this. What is the spread? How do the pip values fit into all this? I thought pip values are determined by the movement of the pair.

Lets assume I wish to trade XAU/USD and my account balance is $2000. Would it be safest to bail out after making one pip gain at the time of each trade if I don't understand this? At least the alternative (as a loss of one pip) may not blow me out of the market. I am not even sure if that is true.

Please explain this to me simply. I am blonde. Perhaps you can suggest a formula that I should adopt until I become a more experienced trader.
  • #32
  • Last Post: Nov 20, 2021 8:57am Nov 20, 2021 8:57am
My broker Stop order at 50% Margin Level.

Is there an indicator which draw a line at price to indicate this level?
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