Premature Margin Call?

Commercial Content Broker Support
1

Hi folks,

Yet another Forex noob here. After spending a few weeks devouring the babypips school, I decided to take the next step and open up a demo account so I could start to get a feel for the market. I went with an FXCM standard (50K) demo account.

The first few trades (about 10 or so) all went in my favor, I made a couple of hundred dollars…so far so good. So like any self respecting newbie with some beginners luck, it was time to up the ante of course.

I went long on GBP/USD with 14 standard lots. My used margin went to $34,000. The pair started dropping, and my equity along with it of course.I was down to about $48,000 or so in equity. I did not have a stop loss in place, but was watching closely and prepared to ride this for a little while longer (and when the money isn’t real, it’s easier to do I’m sure :)… I was going to manually intervene if necessary, but I believed the pair was going to reverse.

What happened next was a total surprise. I received an “emergency” system message that I was getting margin called. The positions were liquidated, and the remaining margin returned. The account was down to around 48K. Still believing in the trade, I bought right back in with nearly the same position size, and rode it back to break even and then some.

My question is this…In reading through the babypips College Course: The number one cause of death for Forex traders…Margin call example…

“As long as your Equity is greater than your Used Margin, you will not have Margin Call.
( Equity > Used Margin ) = NO MARGIN CALL”

Given the parameters described above, it seemed to me that I received a premature margin call from the broker as used margin was significantly less than equity. However, I assume it’s more likely that either…

A) I don’t have a proper understanding of margin in general or…
B) I don’t understand how my specific broker (FXCM) sets their margin call parameters

Like I said, I’m brand new, and have a lot to learn, if anyone can provide any insight I’d appreciate it. If there are additional details on the trade that would come into play, let me know…and I’ll add that info to the thread.

Thanks,

moonlighttrader

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Hi moonlighttrader,

Your understanding of the margin call and how it works on FXCM’s platform is correct. When the Equity is less than or equal to Used Margin, a margin call will occur. (Image below)

You can also look at the Usable Margin column in the Accounts window. It is measuring the difference between Equity and Used Margin. When that number drops to 0, the margin call occurs.

If you want to post a screenshot of the combined account statement from the demo, we can take a look through it to see why the margin call occurred and if there was any error.

Jason Rogers
FXCM

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Thanks Jason, I appreciate the help. In reviewing this…I believe I made a math error, and the actual leverage was around 42K, not 34K as I previously posted…at least I think…

Total of 1,400,000 pounds equates to 2,097.634 dollars(@1.49831, exchange rate at time of margin call).

Dividing 2,097,634 by 50 (using 50:1 leverage) gets me to $41,952.58 (US dollars)…which I presume would have been my used margin…but don’t know how to confirm that was where it was at from a report/historical perspective.

The attached screenshot shows all trades from account opening, through the 7 margin calls. Adding profits and subtracting losses, I’m showing account balance at $47,506.24 after the margin call (and this would presumably be the equity right before margin call as I didn’t have any other open trades besides the 7 that went MC). So even though I think my math was off in my first post, I still think my equity was higher than used margin.

Any insight is appreciated :slight_smile:

moonlighttrader history.jpg700×573 63 KB

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Also, reviewing my account again, when I bought back in, that trade alone didn’t get me back to break even…it took a couple of others as well. Not necessarily relevant to the margin call question, just wanted to correct myself to anyone reading, that on second look, I didn’t do as well as I thought on the reverse :slight_smile:

Anyway…still learning more every day…and looking forward to continuing to do so.

5

Thanks for posting the statement, it helps greatly.

Just to reiterate some of what you posted, you were trading a total position size of 1,400,000 (1,400k) GBP/USD at the time the margin call occurred.

At 50:1 leverage, the margin requirement for each 10k lot traded in GBP/USD is currently $340 or $3,400 per 100k lot. Therefore your total used margin was equal to $47,600.

You’re probably wondering how I came up with those margin requirements! I’ll go into detail.

Directly adhering to the 2% margin requirements (or 50:1 leverage) would cause margin amounts to change as market rates fluctuate. For traders, this would mean watching not only your trades, but monitoring frequently changing margin levels. We have learned that many clients like trading with fixed margins. Therefore, we add a slight cushion to the margin requirement to help alleviate daily or even weekly fluctuations. In most cases, the cushion we have added means that margin levels should not change more than once a month. Additionally, to further keep things simplified, margin levels will only go up or down in increments of $10.

So in your example, using the GBP/USD exchange rate of 1.49831 to calculate the margin requirement would be correct IF the margin requirement were being calculated in real time off of the current exchange rate.

Where can I find current margin requirements?

The margin requirements per lot are listed in the MMR column of the Simple Dealing Rates view. Here’s a screenshot of my demo.

These amounts are relatively constant. Our goal is to only change these amounts once per month as market prices make large moves (as mentioned above).

Your demo also helped me discover a problem. Even though your demo is set to 50:1 leverage, it is probably displaying an MMR which corresponds to 100:1 margin. So in your demo, you probably see $170 MMR for GBP/USD even though it should display $340. I checked with our technical support team and this problem will be corrected in the next update to the FX Trading Station II software scheduled for release in August.

When it becomes necessary for margin requirements to change, we will attempt to notify clients by sending pop-up messages via the trading station at least 24 hours prior to the change. The leverage amounts are flexible. The maximum leverage you can request with FXCM US (fxcm.com) is 100:1, and the maximum leverage you can request with FXCM UK (fxcm.co.uk) is 200:1.

I hope that helps shed some more light on everything. Let me know if anything is unclear.

-Jason

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Jason,

Thank you for the very thorough explanation…

I did notice the MMR set at 100 in the simple dealing rates, which didn’t correspond to my used margin anytime I opened any trade. I was able to find the correct 50:1 figure on the FXCM website, which then made the used margin figures I was seeing make sense. I’m glad to see that’s being updated in the next release…thanks for the heads up.

Just one point of clarification…the total position size was 1400K (not 1600 that you typed). However, I’m guessing was just a typo, as the 3400 margin per standard 100K lot times 14 lots is exactly 47600 that you show below. That figure does correspond to where I received margin call.

I think I have good understanding now. I had assumed margin call levels were calculated in real time based off exchange rates. If they are set at a fixed level manually, then it all starts to make sense.

Last question…when I look at the simple dealing rates screen, I can see the MMR leverage level for each pair. However, I don’t see the actual exchange rate used to calculate required margin per pair. In other words, at the current required margin of 3400 US dollars per standard lot at 50:1 for GBP/USD, where can I see the rate used to get to the 3400? Barring that, is there somewhere I can look (either in the software or on the website) to see the current total margin requirements in dollars for each pair, since it’s based on a fixed number? Hopefully this questions makes sense.

Thanks again,

Moonlighttrader

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Ooops, sorry about the typo. Just made an edit to the post, should be 1400k, not 1600k.

The current actual exchange rate the margin requirement is based upon is not listed, but it would be pretty easy to figure out by working the math backwards. For example, this is the formula you would use to figure out the margin requirement typically.

[B]( Lot Size x Exchange Rate) x (Margin Rate) = Margin Requirement[/B]

Plugging in what you know and don’t know, this is what it would look like:

[B]( 10,000 x Exchange Rate) x (0.02) = $340[/B]

Implied Exchange rate = $1.70

For your question

is there somewhere I can look (either in the software or on the website) to see the current total margin requirements in dollars for each pair, since it’s based on a fixed number?
. Not sure I completely understand this question. The MMR column is where you should look for the total margin requirement per lot traded, just keep in mind to double the figure for 50:1 leverage until the problem is fixed.

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Thanks again Jason

Based on that formula I can determine the exchange rate used to calculate the margin requirement. However, in this example margin requirement is a known quantity (340) for GBP/USD. How can I determine margin requirement on a given pair when both margin requirement and exchange rate are unknown quantities?

What it comes down to is this…

If I want to enter a position on on any given pair …say EUR/USD…if I know lot size and I know margin rate…how can I figure out the margin requirement in dollars before I enter the position?

I’m probably missing something obvious…thanks for your patience in explaining all this to me.

9

The margin requirement is known. It is listed in the MMR column of the simple dealing rates. Let’s go over some examples using the MMR displayed in the screenshot below.

The MMR for EURUSD is currently $150 per 10,000 (10k) lot traded.

If you trade 50,000 (50k) of EURUSD the margin requirement is $750 because you are trading 5 lots (5 x $150). If you trade 100,000 of EURUSD, your margin requirement is $1,500 because you are trading 10 lots (10 x $150).

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Okay…I do feel a little dumb now…as sure enough, the answer was staring me in the face.

Somehow when I glanced at the MMR column, I mixed up the concept of margin rate, with margin requiement. A lot of the pairs were at 100…so thought that was the 100:1 margin rate (leverage), and didn’t realize that was the actual margin requirement in dollars per 10K lot.

I think I now have a solid understanding of how margin works and how to calculate it on the FXCM platform.

Jason - You’ve been very patient in explaining this in a way that would get through my sometimes thick skull…Thank you very much…

moonlighttrader

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No worries, it can be a little confusing with all of the terminology to keep track of.

Feel free to visit again if any other questions come up. That’s what I’m here for! :smiley: .

Have a great weekend!

Jason