Avoiding Margin Call

Beginner Questions
1

Hello experts,

I am a newbie in forex trading. I have been going through articles on forex trading and came across ‘Margin Call’. The two options to prevent margin calls is given as:

  1. Use stop loss orders
  2. Maintaining adequate funds in the account

Suppose I am going on long and didn’t place any stop loss. Unfortunately market turned against my trade and almost reached the margin call level. Can I place a reverse order (for example initial order was Buy and now I am placing a Sell order) to prevent margin call?

Please advice.

Thanks,
Sunil.

2

That would be called Hedging, the US brokerswill not allow that, coz of the recent laws.
beside it wont do you any good if you are in a loss you will lock in that loss, its very hard to get outof that situation. Its not imposible but its hard.
Jado

3

Yes, ‘Hedging’, that is what I was looking for. Thank you very much Jado.

But still I wonder how the brokers differentiate Hedging and Swing trading. Jado, can you please explain this?

Note: I hold a FXCM account, looks like these people allow Hedging (UK Forex Trading - Currency Trading - FXCM)

4

First things first: Trade smaller!

If you are risking a margin call then you are most definitely trading much too big.

Second thing: “Hedging” might stop the bleeding in the immediate term, but it doesn’t change anything. It just locks your loss in as long as you have the hedge on. You won’t be able to recover so long as you’re hedged and there’s no guarantee that once you do lift the hedge that the market doesn’t carry on against you and trigger that margin call anyway.

5

Yes, just to protect my money from margin call, not to make any profit.

For long term trades, I learned that people doesn’t put stop loss. If the market goes against the trade, I believe hedging is the only option to protect our account, is this true?

6

Just trade with small size lot like 5 k 0r 10 k and compare you trade with big size lot like 100k to 400k. Trade with 10k lot = $1 pip & 100K = $10.00 perpips. higher risk at bigger lot and you will receive fast margin call if trade goes agaist you . Normally 90% new Trader lost their money trade bigger lot with small amout of their deposit like $2000 to $10,000 . Even the $10,000 is not sufficient to trade biggger lot.
My advise those have below $5000 , just trade 5k or 10k lot. Then later you can increase you lot size when you expert.

7

Some people do use stops with long-term positions, and some don’t.

As for hedging being the only protection, it depends on what you mean by hedging. If you’re using the retail forex definition of putting on an opposite trade in the same currency pair, then you’re not protecting anything. All you’re doing is locking in your loss for as long as you have the hedge on.