Margin Call Confusion

Beginner Questions
1

Hey guys,

I’ve been reading up on margin call for a few hours now, but something just doesn’t add up for me. Let me put my understanding forward, so that you can correct me if I’m wrong.

Before I begin, let me put forward that I have checked most of the existing forum questions before I created my own topic. I couldn’t find a similar question. Hence, here I am.

So,

Let’s say that I deposit $200 (minimum required by IC Markets) into my first live account and I’m looking to trade at a 0.01 lot size with an account leverage of 1:500. My initial trade would be 1,000 micro lots by spending $2 of my actual money. In this scenario, I’m going to assume that my margin call will be at 50%. My understanding is that I would be given a margin call when my loss reaches -$1.

Is that the case or will the loss continue to go down further till my initial deposit reaches almost null? Will the margin call be contained for the individual trade or is it for the total deposit of the account? Rather, when will I receive a margin call in the above scenario?

Thanks in advance for your response.

2

Hey @pipfly… margin call is relative only to your account balance, not to individual trades.

So in the example you gave above you can get a margin call in this way:

When the total loss on your open trades (whether its just one or multiple trades) gets as much as 50% of your balance.

Hopefully that clears it up?

Edit: Just to clarify, margin calls happen rarely and almost always it is caused by improper trading practices. So try not to get margin called lol.

:sunglasses:

3 Likes
4

Your scenario is very confusing indeed. Let me help you straighten out a few things. Let’s get a few things clear from your example. Your account deposit (aka Balance) is $200. Your trade size is 1 micro lot (aka 1000 units) of USD/JPY (for example). Your leverage is 1:500 (this means your Margin Requirement is 0.2%). Very important to note is that your Margin Call Level is set by your broker so let’s ASSUME it is 50%.
From the example above, your Required Margin for a trade is $2. This is the amount you need to bring forth for you to open your trade. You will receive a Margin Call when your trade goes against you so much that your Equity (which is your Balance PLUS your Floating Profit or Loss, although it has to be a loss in this case which would then significantly bring down the value of your Equity) is half of your Used Margin. In this case, your trade must have moved against you to the point where you must have lost $199. Your Equity at that time would then be $1 and your Margin Level would be 50%. This is also your BROKER’S MARGIN CALL LEVEL at which point they take the appropriate action either sending you a warning or closing your open position. So, you’ll have to know your BROKER’S policy.
Finally, at this point, I want to refer you to the School of Pipsology. They have a section on Margin 101. It’s a very detailed section to help you understand this properly as it seems you don’t really have a good grasp of this topic.

1 Like
5

Thank you for your simple explanation. Understood perfectly. :slight_smile:

And yes, I’m trying understand the entire basics thoroughly before I step foot into the trading. I shall do my best not be margin called :wink:

6

Thank you Som-T for the very detailed explanation. Cleared things up well. I will look into the Margin 101 as well. Cheers! :slight_smile:

2 Likes
7

Please make sure to check the edited post. I made some errors in the original post. All the best. :+1:

2 Likes
8

A margin call occurs when the value of an investor’s margin account (that is, one that contains securities bought with borrowed money) falls below the broker’s required amount. Does it somehow helps you to resolve the whole issue you have with IC markets ?