A margin call is a term used to describe the alert sent to a trader to notify them that the capital in their account has fallen below the minimum amount needed to keep a position open. A margin call can mean that the trader has to put up additional funds to balance the account, or close positions to reduce the maintenance margin required.
A margin call can also be used to describe the status of your account – i.e. you are ‘on margin call’ because the funds in your account are below the margin requirement.
When you trade with leveraged products – such as CFDs – there are two types of margin: a deposit margin, needed to open the position, and a maintenance margin, needed to keep the position open. It is the failure to uphold the latter that will trigger a margin call.
If a trade loses money, the funds in your account may no longer be enough to keep the position open and your provider will ask you to top up your account in order to bring your balance up to the minimum margin—this notification is a margin call. If you top up your funds, the position will remain open. If not, your provider may close the position, and any losses incurred will be realized.
Required margin is inversely related to leverage, so it can be determined as 1 / leverage, so the higher the leverage, the lower the required margin. Assuming the account has 1,000x leverage, to open 1 standard lot of EURUSD (1st standard = $ 100,000 for the currency), the required margin would be 1/1000, which is 0.1% of the 1st lot value, which is $ 100,000. x0. 1% = $100, so the required margin in the account should be $100. Now suppose your broker has a 20% margin call, your broker will advise you to credit your account as soon as the margin is available in your account drops to at least $20 (20% of the required $100 margin).
The term margin call came from the practice of brokers calling their clients to inform them of the account deficit. But nowadays, most margin calls are delivered by email.
For those who are planning to change their existing broker or to choose a new broker, I would highly recommend Capital Street FX, as they give a margin call at 50% of your margin which is quite good as if your broker well informing you about your lower margin, it can really help you to maintain your margin well before stop out triggers.