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.
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’. For more information about stop loss orders, read this article.
- 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. For more information about risk management, this article.