A margin call is a function that prevents traders from opening new positions as their margin level is below a certain threshold.
When trading forex, CFDs and other financial instruments with leverage, you only need to provide part of the overall value to open a position. Margin requirements are determined by leverage. For example, if you’re opening a 2,000 EUR/USD position and the leverage setting is 1:30, the margin required is €66.67.
Although leverage allows you to open positions with less margin, you still need to worry about potential losses. When a position encounters unrealised losses, known as drawdown, margin level falls.
If your margin level falls below a certain level, usually 100%, it prohibits you from increasing your exposure and opening new positions. Margin call serves as a warning about your account running out of free margin. The risk is that your margin level could fall below the stop out level due to further unrealised losses. Stop out is a function that automatically closes your positions since you no longer have the free margin to sustain them.
The objective of risk management is to prevent margin calls from happening. In the unfortunate event that you do experience a margin call, you can only resolve it by increasing the free margin in your account; there are a few ways to do this:
Closing positions will unblock used margin, and closing profitable positions will also increase balance.
Deposit funds to your trading account.