If you are investing in CFDs or trading in the currency exchange market, it is very likely that sooner or later you will encounter the term “margin call” but what does this mean?Before starting the topic, it is necessary to define some important details at the beginning:
Balance: is the balance of your account before opening any trade.
Bonus (credit): is the amount granted by the company.
The current amount (equity): It is the sum of the balance and bonus in your account, and during the opening of any deal, if you are a winner, the amount will increase, and if you are a loser, you will find the value of your account less and this is the amount that will be available to you in the event of closing the deals.
Margin: It is the amount reserved from your account when opening any deal.
Free margin: It is the amount remaining in your account after opening any deal and after deducting the reserved margin
You will receive a “margin call” if there is no longer enough money in your account to keep the current positions open and this happens when the market price drops more than the money in your account.Example:
Suppose you have deposited $ 100 in your account and opened a trade of $ 1,000 (due to the presence of leverage) and therefore if the shares become ten percent less valuable, you will lose $ 100 and in order to maintain the open position, you will often have to deposit additional money, but when the amount in Your account is up to 20%, the broker will margin call, and if you do not add funds to your account, your deals will be closed automatically from the highest loss position to the lowest, and in this way, you will not lose more than what is in your account.
This is what you should know simply if you did not use a stop loss (SL) and left your position open.