Margin Call and Stop Out

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NAGA Trader

A margin call is generated when the equity balance in an account drops below the margin requirement for the account. If the maximum allowable leverage has been exceeded, any open positions are immediately liquidated (Stop Out), regardless of the nature or the size of the positions.  

 

BREAKING DOWN Margin Call

A margin call is the term for when a broker requests a maintenance margin from a TRADER, in order to keep a leveraged trade open.A margin call is triggered when the investor's equity as a percentage of total market value of securities falls below a certain percentage requirement, which is called the maintenance margin.Margin trades, such as CFDs – require a certain amount of funds to remain open. If a trade loses money and the funds in your account are no longer enough to keep the position open, your provider will ask you to top up your account.

 

HOW TO AVOID MARGIN CALLS?

Leverage is often and fittingly referred to as a double-edged sword. The purpose of that statement is that the larger leverage you use to hold a trade greater than some large multiple of your account, the less usable margin you have to absorb any losses. The sword only cuts deeper if an over-leveraged trade goes against you as the gains can quickly deplete your account and when your usable margin % hits the limit set by the broker, you will receive a margin call. This only gives further credence to the reason of using protective stops while cutting your losses as short as possible and control your leverage.

 

WHAT IS LEVERAGE?

To multiply your capital (to trade with more money than you are able to invest), you can leverage your position. Different brokers offer different leverage rates.

 

WHAT IS MARGIN?

Margin is a collateral (borrower´s pledge to secure the repayment) to cover possible trading losses.

 


 

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