What is Margin? What’s a 'Margin Call'?
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What is Margin? And what’s a 'Margin Call'?
In simple terms, Margin is the amount of money you need to open a trade. When you make a trade with Skilling you don’t have to cover the full cost of the trade. Instead, we'll only ask for a small part, known as a 'Margin'. This is one of the big benefits of trading with an FX broker such as Skilling, and it varies depending on the instrument you are trading but typically ranges between 1% and 33%
Example:
You would like to Buy 1,000 units EUR/USD. Since the maximum leverage is x30, then the margin needed for this position is ~33 € ( 1,000/30 ).
You can see how much Margin is needed for the trade, as this is shown on the trade tickets that pop up immediately prior to you executing.
Okay, so what’s a Margin Call?
A Margin Call is a notification stating that the necessary funds in order to keep a position(s) on the account open, are running low. So, it’s a way of alerting you to a possible shortfall in your account in case you were unaware.
This typically happens when a position is going against you and the initial Margin is no longer enough to maintain the position. Either you should top up your account, or start closing the position(s) - or in a worst case the broker will close them for you.
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How can I avoid a Margin Call?
There are a number of things you can do to avoid Margin Calls:
- Use stop loss orders.
- This will prevent losses ‘running wild’.
- Monitor your open positions frequently.
- Markets can be volatile so you check in on your open trades as often as you can to make sure you aren’t accumulating any unforeseen losses.
- Cut your losses.
- If you’ve invested a lot of time, effort and money into a trade it can seem hard to walk away – but sometimes that’s exactly what you must do. As they say on Wall Street, 'cut your losses and let your profits run'
- Manage your risks.
Not investment advice. Past performance does not guarantee or predict future performance.
