NoaFX Tutorial

3.4 Margin Call Situation

What is a Margin Call Situation?

This is probably the worst piece of news that might befall any trader and is often caused by poor money management or risk limitation practices.

Margin call most often occurs when the trader drops the amount of actual capital below a set percent of the total investment. A margin call may also be triggered if the broker changes their minimum margin requirement. (The absolute minimum percentage of the total investment that one must have in direct equity).

If for any reason you do not meet the margin requirements, the brokerage has the right to sell your securities to increase your account equity until you are above the maintenance margin. Even scarier is the fact that your broker may not be required to consult you before selling! Under most margin agreements, a firm can sell your securities without waiting for you to meet the margin call. You can't even control which positions can be sold to cover the margin call.

Why do I have to know this?

You must always maintain a healthy level of margin in your account, regardless of what your trading performance or risk exposure at any situation is.

The margin requirements vary from broker to broker and may also be affected by the account leverage facility. Therefore, consult your broker and be aware of this requirement always.