A margin call in forex is a situation in which your account equity falls too low to support your open leveraged trades. The broker may ask you to add funds or close positions. If equity falls below the broker's minimum margin requirement, the broker may automatically close some or all of your trades.
For the example below, a $10,000 position uses $200 in margin. This explanation is current as of.
Forex Margin Calls at a Glance
| Term | Meaning |
|---|---|
| Margin | Money reserved to open and maintain a leveraged forex position |
| Equity | Account balance plus or minus the unrealised profit or loss on open trades |
| Used margin | Margin currently tied up in open positions |
| Free margin | Equity minus used margin |
| Margin level | Equity divided by used margin, multiplied by 100 |
| Margin call | A warning or requirement to restore sufficient account equity |
| Margin closeout or stop-out | Automatic closure of open positions when equity falls below the broker's liquidation threshold |
How Does a Margin Call Work in Forex?
A margin call can occur when losses on open trades reduce your equity below the broker's required maintenance level.
Forex leverage lets you control a position larger than your cash balance. The margin is collateral for that position, not a trading fee.
When the market moves against you, your unrealised loss reduces equity. The broker's terms then determine whether you receive a warning, need to deposit funds, must reduce your positions, or face automatic liquidation.
Some brokers provide a warning and give you time to respond. Others may close positions without a separate warning, especially during fast-moving markets.
What Causes a Forex Margin Call?
A margin call usually results from one or more of these conditions:
- An oversized position: A large trade can produce large losses from relatively small currency-price movements.
- Excessive leverage: Higher leverage lowers the margin needed to open a trade but lets losses consume equity faster.
- Several open positions: Multiple trades can use more margin and increase total losses.
- Correlated currency pairs: EUR/USD and GBP/USD, for example, can sometimes lose value at the same time.
- Market gaps or sharp volatility: Prices may move rapidly after economic announcements, geopolitical events, or market reopenings.
- Widening spreads: A wider bid-ask spread can temporarily increase the unrealised loss shown on a position.
- Overnight financing and account charges: These costs can gradually reduce equity while positions remain open.
The U.S. Commodity Futures Trading Commission warns that margin and leverage in retail OTC forex can magnify both gains and losses. Traders may have to add money or close positions when losses reduce the account below the required margin.
How Is a Margin Call Calculated?
You can monitor a margin account with four figures:
Equity = Account balance + Unrealised profit or loss
Free margin = Equity - Used margin
Margin level = (Equity ÷ Used margin) × 100
Example of a Forex Margin Call
Suppose you have:
- Account balance: $1,000
- Position size: $10,000
- Margin requirement: 2%
- Used margin: $200
The position requires $200 in margin. Your initial free margin is:
$1,000 equity - $200 used margin = $800 free margin
If the trade moves against you and produces an unrealised loss of $850:
- Equity becomes $150
- Used margin remains $200
- Margin level becomes 75%
($150 ÷ $200) × 100 = 75%
If the broker's margin-call threshold is 100%, the account would already be in a margin-call situation. The actual threshold varies by broker, account type, and jurisdiction.
What Is the Difference Between a Margin Call and a Stop-Out?
A margin call is the point at which your equity has fallen below the broker's required level for maintaining open positions. The broker may warn you or require you to add funds or reduce exposure.
A stop-out, also called a margin closeout, is the forced liquidation of open trades. The broker closes some or all positions to reduce the account's exposure.
The usual sequence is:
- Open trades lose money.
- Equity falls and free margin decreases.
- The account reaches the broker's margin-call threshold.
- The broker may warn you or require action.
- Equity falls to the stop-out threshold.
- The broker automatically closes open positions.
Broker policies differ. OANDA describes separate margin-call and margin-closeout thresholds, while FOREX.com states that traders should not necessarily expect a separate warning before positions are closed.
Does a Margin Call Mean You Owe the Broker Money?
Not necessarily. A margin call means the account needs more equity to maintain its open positions. You may be able to respond by depositing funds or closing part of a trade.
A fast market can cause positions to close at a worse price than expected. Depending on the broker, jurisdiction, and account agreement, losses may exceed the original deposit. The CFTC warns that retail forex traders may be liable for additional losses beyond their initial deposit.
How Can You Avoid a Forex Margin Call?
The main ways to reduce margin-call risk are to use less leverage, trade smaller positions, and keep more free margin available.
- Keep substantial free margin available. Avoid using most of your account equity to support open trades.
- Reduce position size. Smaller positions produce smaller losses for the same price movement.
- Avoid stacking highly correlated trades. Several positions can create one large directional exposure.
- Set a stop-loss before entering a trade. A stop-loss can limit planned risk, although slippage and market gaps can result in a worse fill.
- Check the broker's margin policy. Confirm the margin-call level, stop-out level, liquidation order, and warning policy.
- Monitor economic events and market reopenings. Volatility and reduced liquidity can cause rapid changes in equity.
- Do not rely on adding funds as your main risk control. A deposit may delay liquidation, but it does not make an oversized trade safer.
What Should You Do After Receiving a Margin Call?
After receiving a margin call, check your:
- Equity
- Used margin
- Free margin
- Margin level
- Unrealised profit or loss
- Open position sizes
- Broker-specific margin-call and stop-out thresholds
Your immediate choices are usually to:
- Close or reduce open positions to release margin and limit further losses.
- Add funds if you understand the risk and still want to maintain the positions.
Reducing exposure addresses both parts of the problem: it lowers used margin and reduces the potential loss from another adverse price move. Adding funds increases equity but leaves the market risk of the open trade unchanged.
The Key Point
A margin call is controlled by the broker's margin rules, not by one universal forex percentage. Before trading, find out the broker's margin-call level, stop-out level, liquidation process, and warning policy. Some brokers provide a separate warning. Others may close positions without one.