Margin call *price* mathematical equation

Trading Discussion Risk Management Practices
1

The margin call is at 70%.
Leverage: 400
Position size: 10,000

Can someone please tell me how to calculate the PRICE at which margin call would likely happen.

A general mathematical equation for the margin call price would be great.

Appreciate it!

2

Margin call will be activated when the margin level is close to 100% or below. Margin level is shown in MT4 trading station.

The broker defines when it will close and which order will be closed.

If the margin call will be activated on 70% it will be when the margin level is on 70%.

What price will be the level where the margin call is activated I cannot calculate without knowing more details.

But here you can find more details about all Margin levels you will encounter in Metrader 4:
Margin Levels in Metatrader 4

3

Okay, thank you. For the calculation, you expressed that you would like additional details, what would that be, perhaps I can provide that so that there’s clarity on how to calculate the margin call price or maybe just inventing an example would suffice. Thanks again!

4

@anon19517939

Well, the question you asked looked like a challenge, so I developed the formula.
I’m not sure it was worth the time it took, but here it is.

The price, Pb, at which a margin call is triggered is given by the following formula –

For a margin call in a LONG position in a non-yen pair –

Pb = Pa - [B - (0.7 x Mp x Vn)] / [10,000 x Vp]

where

  • Pb = the current BID price of the pair traded, when the margin call is triggered
  • Pa = the ASK price of the pair at entry
  • B = the initial account balance prior to opening this trade
  • Mp = the margin (percentage) required to open this trade
  • Vn = the notional value (in USD) of this trade
  • Vp = the value of one pip for the position size (in lots)

Example:

Account balance: $3,000
Pair: EUR/USD
Position size: one standard lot (100,000 units of EUR)
Entry price: 1.1102 ASK
Maximum allowable leverage (broker leverage): 50:1

From these metrics, we know immediately that –

Mp = 2% (that is, 0.02)
Vp = $10

And we calculate that –

Vn = 100,000 EUR x 1.1102 = $111,020

Therefore, the price Pb at which a margin call is triggered will be –

Pb = Pa - [B - (0.7 x Mp x Vn)] / [10,000 x Vp]

 = 1.1102 - [$3,000 - (0.7 x 0.02 x $111,020] / [10,000 x $10]

 = 1.1102 - [$3,000 - $1,554.28] / $100,000

 = 1.1102 - 0.0145 (rounded off) --  a loss of 145 pips results in a margin call

Pb = 1.0957 – this is the price at which a margin call is triggered in this example

For a margin call in a LONG position in a yen-pair, the term [10,000 x Vp] changes to [100 x Vp].
In this case, Vp (in USD) will have to be calculated using the current USD/JPY price.

For SHORT positions, Pa and Pb change roles.

  • Pb becomes the (SHORT) entry (BID) price.
  • Pa becomes the current (ASK) price (above the entry price) when the margin call is triggered.
    Therefore, for SHORT positions, it is Pa that must be solved for.

For a SHORT position in a non-yen pair –

Pa = Pb + [B - (0.7 x Mp x Vn)] / [10,000 x Vp]

For a SHORT position in a yen-pair,

Pa = Pb + [B - (0.7 x Mp x Vn)] / [100 x Vp]

2 Likes
5

wow!
thank you very much

6

Thanks a lot, it’s important to know.