What is a Margin Call?
Forex trading has been has become marginally in general and this is a challenging question of newbies that what exactly is a margin call. In fact, the forex broker gives you the opportunity to trade with money that is not yours. The average Forex leverage is very high between 1:50 and 1: 200. Leveraging an account with a maximum ratio of 1:200 means that even the slightest drop in the value of your active trades may result in the loss of your account balance. This is just when you receive Margin Call’s from your broker.
If you want to continue trading, you need to deposit more money into your Forex account; therefore, the easiest answer to the question of what “Margin Call” is, in fact, is the request from the broker that if you are going to continue trading you have to pay more Deposit your account; but the more complicated question is why and how does it happen?
Reasons of Marginal Call
The first step is to understand Margin Call’s reasons. The second step, and more profitable, is learning how to avoid a potential call margin. Short answer To understand the reason for the call margin is very simple, you have completed your available margin.
The second step, which is very beneficial to you, is identifying and avoiding activities that reduce your usable margin. However, the most important reasons for confronting Marginal Call, which should be avoided as a plague, are (none of them prioritized):
- Keep a long-term unsuccessful transaction that results in the loss of your used margin.
- Leverage excessive leverage in the trading account with the first reason.
- A trading account with little capital will force you to bargain too much with a very low margin.
In short, the common causes of margin calls are to use excessive leverage with inadequate capital and to keep long-term unsuccessful transactions that you should abandon.
What happens when Margin Call is happening?
When the margin call occurs, your trading status is completely dissolved or you will be out of your trading. In fact, the result is double, because of not having enough money in your account, you are no longer able to keep unsuccessful trades and your broker is in danger due to your loss, which is equally harmful for him.
How to prevent margin call?
The leverage is often and properly referred to as a double-edged sword. This term means that whatever leverage you use to hold a deal is greater than several times your current account balance, you will have the same amount of less margin available as you can to bear the losses. When an over-leveraged trade moves against you, this sword will enter a deeper gap as you quickly deplete your account and receive a margin call when the margin is available to zero. That’s why it’s very clever to use protective precautions to minimize losses.