What is a margin call, how do you avoid it, and what is going to happen when you get one, please?
Most thorough answer I've seenYou receive a margin call in forex when your available capital drops below margin requirements. This usually occurs when the market has moved against your open positions and depleted your deposited capital. When you receive a margin call, the broker closes your open positions to prevent your equity from dropping to a negative value and requests that you deposit more funds if you want to continue trading.
Some brokers offer tiered margin warnings. That is, when your positions are in loss and you are nearly reaching half of your margin requirements, the broker sends you a margin warning, not a margin call. This gives you the chance to either close the positions early or deposit more funds. With a margin warning, the broker does not close your open positions. If you left the positions open, and they continued to move against you until you have reached your minimum margin requirements, you receive a margin call and the broker is usually forced to close your open positions.
Most forex brokers offer you trading on margin services. Trading on margin means that you trade with more money than you had actually deposited. For example, if you want to buy the EURUSD you need to buy at least a mini lot, which is around 10,000 USD. However, you only need to pay a small part of that amount since you are trading on margin, and your broker will lend you the rest. If you earn money on the trade, you will have more margin to trade, but if you lose you will have less. All the capital you deposit will be considered as margin.
You can see how much margin you need by looking at the degree of leverage your broker is offering. Let us say your broker offers 1:30 leverage, then you need only one-thirtieth of the amount needed to trade as margin. The rest will be lent to you temporarily by your broker until you close your position. The more capital you have, the larger lot sizes you can trade. However, it is important to note that leverage is a two-edged sword, as it can increase your losses as well as your profits. Thus, you must trade responsibly when you trade with leverage.
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