⭐ How to avoid a Margin Call?
- Risk less than 1-3% of your account equity at any time.
With $100 deposit and risking 1% per trade, you're able to trade only Micro lots (0.01 lot) with Stop loss being set no further than 10 pips away.
With $500 deposit and risking 2% per trade, you're able to trade only Micro lots (0.01 lot) with Stop loss being set no further than 100 pips away.
With $500 deposit and risking 2% per trade, if you choose to trade Mini lots (0.1 lot), your Stop loss should be no further than 10 pips away. It quickly scales up!
- Use Forex Money Management Calculator for quick risk assessment.
- If you do risk more, set strict Stop loss rules and exit unprofitable trades sharply as per your exit rules, without second thoughts. Failure to do so will quickly drain down the account. It's a common beginners' mistake.
- Add funds to the account as soon as you're close to a Margin Call, should you strongly believe that your trading decision is correct... yet keep in mind that Margin Calls hardly ever happen with experienced traders. If you've got a Margin Call, it's time to study more about Forex Money Management.
What is Margin Call?Margin Call - is an event of insufficient money in Forex trading account. Even if a Trader is correct about market direction, and his/her trading position is destined to Win, Margin Call is still possible.
When does it occur?Margin Call occurs when price moves against Open trading positions enough that there is insufficient funds in the Forex account to absorb a temporary drawdown. This can turn a wining trade into a losing trade when position is forcefully closed by a Broker due to insufficient funds.
What happens during a Margin Call?During a Margin Call the broker informs the Trader about insufficient funds in the account. A trade must deposit additional funds in order to keep positions open. Failure to do so will result of trades being closed automatically wiping out the account.
Will I get notified? How much time do I have act?Typically you will have a few days to "sort out" the margin deficit (to add more funds).
A broker will send you the first email upon reaching a Margin Call level.
Then likely a second courtesy reminder if no action is taken and the margin continues to drop.
Then position auto-liquidation begins.
However, if the market is volatile, and your trades plummet & plow through a margin level and a stop out level in seconds/minutes, there will be no time for courtesy notifications. Keep that in mind, and don't take high risks in the first place.
Margin Call Emergency Recovery StepsStep 1. Add more funds to the account as soon as possible
This is the first expected action during a Margin Call. And this will prevent position liquidations for the time being, allowing you time to breathe and think about recovery plan.
Step 2. Try closing a few losing positions (where you see less potential for a trend recovery)
By doing so you will hopefully free enough margin to keep other positions open. It's always painful to accept losses, but it might help to stay afloat.
Otherwise, in the unfortunate event of a Stop Out, the platform will automatically close positions for you starting from the least profitable ones.
Step 3. Once account is topped up, look at opportunities to hedge positions with small profit taking on a regular basis
Hedging requires skills, don't expect it to be an "easy fix" though.