Margin call at 50%

Hello,

I have a newbie question that I hope someone can answer.

I am using a demo account and thinking of going live soon but want to be clear what is meant when a Broker states that there will be a Margin call at 50%.

I understand that to mean the oldest losing positions will be closed out or more funds must be deposited into the account when the equity reaches 50% of the initial dseposit.

1) Is that right?
2) Is 50% about the usual amount for a Broker to give a Margin call?

1) yes
2) no..(or at least i dont think so)

Ok so I think I understood the first bit but 50% seems a bit of a strict rule to me.

So I would be interested to hear at what level your Broker gives a Margin call at.

Each broker is somewhat different.

I presume at margin call at 50% would mean when you've used up all of your available equity, and your 50% into your required margin, they close your trade(s).

Pretty much, depending on your leverage at this point you will have blown your entire account.

It is definitely not at 50% of your initial deposit.

Sounds right to me. Whether or not you get a margin call has absolutely nothing to do with the size of your initial deposit.

50% is margin level and is a typical level used by many brokers but some can be different.

Each time you open a trade it "costs" you credit in the form of margin this is charged against your equity in your account when you run out of this credit or the credit gets low enough to equal a 50% margin level then the worst offending trades are closed out to bring margin level back above 50% margin level.

This 50% margin level is not 50% of your account because you most likely have losses and this will deteriorate available margin further as your equity must shoulder the margin required to keep the trades open plus any losses you have.

I believe there is another margin level like maybe 100% where the broker will not allow you to open any more trades until the margin level goes back up or you put more money in. But you would have to check your broker for things like this because they do vary.

Also the margin on some pairs will cost more in terms of margin used than some other more common pairs. Your best bet is to open a dummy demo account and play around with it and see what the effect has by opening so many trades and watching what this does to equity, margin, free margin & margin level.

Thanks a lot for all the replies.

I have been using this same Broker on demo account for many months and I always keep an eye on the Margin I am using with open trades.

I opened a $3000 demo account and am a conservative trader and my used margin has been over $600 and is now $49, but I think it is important to understand the rules each Broker has just in case something goes wrong.

I was thinking along the lines of what Cdawg and pip-seeker wrote but to my surprise it does appear to be based on the initial deposit.

Here are the emails I sent with replies.

ME:
"Can you please help me to understand what is meant by Margin call at 50%. 50% of what?

I understand a margin call is when you/Hotforex would request me to deposit more funds into my account but I am not sure how low my balance or equity needs to drop before you make the margin call."

HotForex:
"You can understand the Margin call in another as that we are reminding you that your equity is running low, so you might have to charge your account to ensure that you have enough funds to keep the trade open.

The margin call level at 50% means 50% of your deposit amount. So if your equity drop down half of the deposit amount you made earlier, you are going to receive margin call."

Me:
"So if I deposit £1000 to open my account and my equity drops below £500 I will get a margin call? "

HotForex:
Yes, you will have a margin call.

In the Premium ,VIP, Islamic, Currenex we have 50% Margins Call and 20% Stop out level.

Me:
"Yes I was going to open a Premium account with £1000 to start with and try out the live platform, if all went well I would add more funds
but I did not realise that if my account went below £500 equity you would give me a margin call.

The other Broker I was considering opening an account with is Pepperstone and they say,

"Your trades will stay open until your available EQUITY level (also indicated in the MT4 terminal) falls to 10% or less of the required margin to open the trades.
If you see the previous example in this faq, the trade opened with a margin requirement of $70.89 would not be subject to a margin call unless the account equity falls to $7.09 or less."

So your 50% rule seems harsh."

I am waiting for thier relpy.

you guys are all confusing the hell out of each other because you don't even know the mechanics of what you are doing.

firstly, read this previously written by me! http://www.forexfactory.com/showthre...in#post4747454

now, after reading this you should hopefully have a better grasp on what exactly is going on when you put a deposit, open a trade, see margin levels fluctuate, etc.

a margin call has NOTHING to do with your INITIAL DEPOSIT. a margin call has to do with how much CLOSED BALANCE (i.e. realized profits versus losses) you have on your account versus how much FLOATING LOSS you have on OPEN trades. if you wake up in the morning with a $1000 account, open a trade, and then let it rot away at your account with an unrealized loss of $500 (i.e. 50%) then your broker is going to close your trade! period. that's their rules if they say 50% is their margin call limit.

on the other hand, if you start with $1000, put on a trade, gain $200, close the trade, then your current CLOSED BALANCE now sits at $1200. then if you open another trade and let it rot away with a floating loss of $600 (i.e. 50% of your account/margin again) then the broker will close your trade with the exact same margin call as the previous example.

if, in another example again, you have an account with $100,000 and you open a 0.01 lot trade then you aren't even using margin... you have the funds to complete the entire transaction. plus, the fluctuations of your account at such a small lot size versus the account balance is so small you would never even see a 50% loss in the next 100 years anyway.

so... depending on the leverage (loan) amount your broker offers you will find times when you can no longer open a trade of certain sizes upwards. you simply don't have enough collateral (margin) in your account... whether that be opening just one trade on it's own, or you already have other trades in play and the floating equity no longer covers the new trade size. edit : or rather, floating equity in conjunction with whatever amount of margin you haven't already used/reserved in opening other currently open trades.

now, it's quite possible i balls this explanation up... so do your own due diligence.

there are 2 things you should take from all of this. 1, getting a margin call means you are not a trader. you will, 100% guaranteed take it to the bank no chance of any other outcome, blow up your account one way or another whether in 1 trade or 20. 2, trading appropriate size and risking the correct amount per trade means you will never ever even have to worry about margin calls and whatnot. when you trade the correct size it is not even a consideration. you will never even notice things like 'margin' and 'margin calls' and 'leverage'. you simply trade risking x% of your account... being that x% should be <1% of your account.

in fact, a way to look at margin calls is the following... you may consider opening a trade risking some percentage of your account, or even your whole account. your broker, however, does not permit you to risk any more than their margin call amount. you might want to risk 70% of your account on a trade, but if your broker has a 50% margin call level then they will close you at 50%. it's to do with protecting their own risk they take on when allowing you to open trades with them (i.e. they have to ensure your account definitely has enough funds to cover what you owe if you are losing, and it's up to them to decide at what level they feel is appropriate to close you out so there are still some buffer amount of funds remaining)