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What is a margin?

Margin means you pay only a certain percentage (or margin) of the cost of your trade or investment. You borrow (leverage) the rest of the money from your broker.

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Margin means you pay only a certain percentage (or margin) of the cost of your trade or investment. You borrow (leverage) the rest of the money from your broker.

The money you need to open your position is your required margin.  We also require you to maintain an adequate overall margin. This is money you need to have in your account to cover any losses. 

If you don’t have enough money to cover potential losses, you may be put on margin call where we ask you to top up your account or close your loss-making trades. If your trading position continues to worsen you will face margin closeout.

In the world of investing, buying on margin means borrowing money from a broker to purchase stock - buying individual shares. But you can also use margin to trade derivatives, such as Contracts for Difference (CFDs). CFDs enable you to trade on the price movement of stocks, commodities, forex, indices and cryptocurrencies (not available to UK retail clients).

In this margin trading guide

Using margin, traders can invest in stocks, or trade on price changes, that they otherwise wouldn’t be able to afford. Trading on margin can help increase gains but also increases the risk and size of potential losses.

You will hear a lot about different margin terms and we’ll try to explain them all in this guide.

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Read on to get a clearer picture.

Getting started with margin trading

Margin trading means you don’t pay the full price of the asset. Instead, you only pay a fraction of the underlying value and the broker lends you the rest of the money for your trade. Margin and leverage are connected and represented by a leverage ratio or a percentage of margin.

  • 2:1 leverage = 50% margin

  • 5:1 leverage = 20%margin

  • 10:1 leverage = 10% margin

  • 20:1 leverage = 5% margin

  • 30:1 leverage = 3.3333% margin

Margin trading example

Let’s say you have $20 to deposit that you would like to trade in stocks. Your required margin is $20. If the leverage that is offered is 5:1 you are able to trade $100 worth of the asset. Every dollar of your required margin is worth just 20% of the total. Your broker tops up each $1 to $5 so your $20 becomes $100.

If, for your $20 margin, you were offered 10:1 (10% margin) you would be able to trade $200, because every dollar would represent just 10% of the total trade and be worth $10 with the leverage. If the leverage were 20:1, (5% margin) you would be able to trade $400 on your $20 investment. Each asset has a different leverage ratio, or margin percentage.

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Maintenance margin

In addition to your required margin you would need to have a sufficient overall margin balance in your account. Your overall margin is the money in your account not currently being used to trade and covers any potential losses in case your trades go against you and you lose more than your initial investment.

How much you need in your overall margin account depends on the value of the trades you are making and whether they are currently in a profitable or loss-making position. 

The money you have in your account is your equity and the money you potentially owe from loss-making positions of open trades is your margin. Your overall margin level, usually displayed as a percentage, is:

  • Equity/margin

This means how much you need in your overall margin account is dynamically changing as the value of your trades change.

You should always have at least 100% of your potential losses covered by your overall margin. Technically this was included in the terms & conditions you agreed to when signing up. You should be monitoring the position of your trades all the time to ensure you have 100% margin covered. 

If you don’t, you’ll be asked to add more funds (a margin call). But think about this before you trade. If you start a trade with only just over 100% covered, you could very quickly find yourself needing to add more funds or close your trade.

Trading on margin allows you to leverage gains when the price of an asset moves the way you predicted – or lose more than your initial deposit if a trade goes against you. (For CFD trading many brokers offer a negative balance protection to protect you from this).

With CFD trading you can go long (Buy) if you think the price will rise, or you can go short (Sell) if you believe the price will fall.

Why are stop orders important?

A stop order, or stop loss, starts to close your open positions if it reaches a price you have set. This means that when a trade goes against you, it can automatically be closed before the losses grow too large and the possibility of a margin call occurs.

A stop-loss order limits the risk. If you Buy an asset at $100 per unit, a stop-loss order automatically starts to Sell when the price falls to the limit you set, for example below $95. If you are going short, you set the stop loss order at a higher price, say $105, in case the trade goes against you.

There are two types of stop orders:

  1. Stop orders that, once triggered, begin to carry out their instruction at the best available prices
  2. Guaranteed stop orders that carry out the agreed transaction at the guaranteed price

A stop order might, for example, start selling a falling asset on a long trade at the stop order price but sell in several batches each time at a slightly lower price as the asset continues to fall in value. A guaranteed stop order comes with a higher price tag.

Stop loss

Leverage and margin explained

Leverage is a catch-all term for when you use borrowed money to invest or trade. 

Brokers make money mainly from spread prices and certain fees, such as commission (not all brokers charge all these). Leveraged positions are also liable to an interest charge known as swap, if they are left open overnight. The larger the trading position, the more fees brokers charge. 

Traders use leverage, hoping that the profits will be greater than the interest payable on the borrowing. With leverage, both profits and losses can be magnified greatly and very quickly, making them high risk.

Let’s say you want to trade in Tesla shares, and Tesla is trading at $600 per share. To Buy 10 shares you will need $6,000, which you might not have. With a leverage of 5:1 you only need $1,200 as required margin to open a position, and the rest will be leverage. 

If the stock price moves to $615 you will gain $150 (10 shares x [$615-$600]). The price of Tesla shares has moved just 2.5% but trading on margin means your profit is 12.5%.

The big ‘but’ is that if the price of Tesla went down by $15 to $585 per share, you would lose $150, which would be 12.5% of your deposit (assuming you haven’t placed a stop-loss order). 

Tesla

If you have a number of trades open, or are in a highly volatile asset class where large price swings occur quickly, you can suddenly find yourself with several large losses added together.

If you haven’t placed stop-loss orders and you do not have enough money to cover your losses, you may receive what is known as a margin call - a request for additional funds that we’ll explain in more detail later. Margin calls can be taken badly and no trader wants to be faced with one, but they are the ultimate protective measure to save you from ruin. Many traders experience a margin call and learn from it.

Margin requirement

The money that is required to open a trade is variously called margin, initial margin, deposit margin or required margin. At Capital.com, we call it required margin.

How much will be required exactly will depend on the assets you choose. It is calculated as a percentage of the asset’s price and is called the margin ratio. Every instrument has its own required margin. 

In CFD trading, many forex pairs have a margin requirement of 3.333%, indices and popular commodities such as gold have a margin requirement 5%, while for riskier assets such as cryptocurrencies (not available to UK retail clients) it might be 50%.

Trade Gold Spot CFD

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If you have several positions open (many different trades) at the same time, the combined total of the required margin for each trade is called your used margin. Any money remaining to open new trades is called your free margin.

In addition to the money you deposit for individual trades, you need to have funds in your account to cover potential losses. This is called your overall margin. You should always have enough money in your account to cover 100% of your trading losses.

Margin Account

What is a margin account?

To trade on margin, you need to have a special type of account that is called a margin account. It is an account with your broker who has agreed to lend you money (called leverage) to increase the value of your trades. Using a margin account means you can increase the possibility and size of profits but similarly increase the risk and size of losses.

Where have you heard about margin accounts?

Margin accounts references in popular culture can be found in big Hollywood film productions. You may have heard of the film Margin Call, starring Kevin Spacey and Stanley Tucci. It’s a fictional account of what happens when investment firms over-leverage, and margin accounts become worthless. Trading Places, starring Eddie Murphy and Dan Aykroyd, explores similar themes.

MARGIN CALL (2011) PAUL BETTANY, KEVIN SPACEY, ZACHARY QUINTO, PENN BADGLEY J.C. CHANDOR (DIR) 010 MOVIESTORE COLLECTION LTDMoviestore Collection by Alamy

What you need to know about margin accounts

With a stock broking margin account, you can borrow up to 50% of the purchase price of a stock. With a CFD margin account you can borrow even larger percentages. The amount you contribute is called the initial, deposit or required margin. The second type is known as the maintenance or overall margin, which describes any additional funds that may have to be paid into the account to make up for a decline in the value of the assets being held as security.

At capital.com we use the terms required margin and overall margin.

What does trading on margin mean?

Trading on margin means putting down only a partial sum and using leverage – a form of borrowing from a broker – that enables you to trade more assets using borrowed money.

There are specific rules and you must first establish a margin account with your broker and ensure pre-agreed amounts of money or other securities are kept in it.

Margin interest rates are lower than other forms of borrowing, such as credit cards or unsecured loans debt.

But borrowing ‘on margin’ is always riskier, sometimes a lot riskier, than non-leveraged trading. If the trades go against you, you can lose the borrowed money too – and still have to pay it back with interest, plus other possible charges.

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Using margin for different asset classes

You can use margin to trade in most asset classes. You can, for example, invest directly in equities and buy your preferred shares and hold on to them until you are ready to sell. You can also trade derivatives, such as CFDs.

In an ideal situation, which isn’t always the case, a successful trade should be able to cover any fees and be enough to repay the broker, including interest, and still make a profit for the trader.

Stocks and shares

Assuming the shares you wanted to buy were in a leading company, the broker might ask for a 50% margin. This means you would pay £50,000 and your broker would buy you £100,000 of shares.

A 20% rise in the share price would net you £20,000 in profit, actually, a little less after paying the interest and transaction fees. 

The problem is that if the shares fall 20%, you’ve made a £20,000 loss, plus interest on the £50,000 borrowed and the transaction fees. That’s the danger with margin – you can reap huge rewards but face equally large losses.

Derivatives

Trading directly in shares on margin is for big-time, experienced investors who have been vetted by their broker as professional with a strong credit history. But the principle of margin trading works for retail investors too, in trading financial instruments such as CFDs.

An investor who owns shares might trade CFDs as a hedge against the shares they own falling in price.

The investor would short using a CFD. Short selling shares means borrowing shares you don’t own and selling them at the current price (leaving you short) in the belief that the price will fall.

You then buy what you owe once the share price has dropped and return the borrowed shares, keeping the money you have made.

CFDs enable an investor to short cheaply because they do not have to borrow or own the underlying asset.

How hedging with CFDs works

An investor sitting on 1,000 shares in company ABC, fearing the price is going to fall, might make a CFD short trade in the same company.

If the price falls, the investor would lose money on the shares but recover it on the CFD trade (less any interest on the borrowed money and any transaction fees, if applied by your broker).

But investors do not just hedge against share price movements. You can use margin to speculate that one currency will do well against another. You can speculate that a market index will rise or fall. You can speculate that the price of a commodity will go up or down.

Margin is not limited to a single asset class. What margin does is enable you to make a bigger profit or loss from your trading.

Retail traders using margin

Simplified margin trading, using automated systems online and on mobile apps, are now available to retail investors, often based on CFDs. You might only need a small amount of money to begin trading, usually with trades closing at the end of the market’s trading day.

The systems are carefully regulated, often with a maximum leverage ratio set by regulators.You might not have as favourable margin ratios as a big investor who has a private margin account with a major broker, but entry is straightforward.

What’s the worst case scenario?

If a market suddenly moves against you while you have a trade open, you could potentially lose everything you have in your margin account and still owe more.

Even if your broker works hard to close out all your positions, it might not be possible to close them fast enough to stop the losses.

Some of the retail trading platforms, like Capital.com, offer guarantees that, in the event of the broker’s close out failing to limit your losses in your maintenance margin, they will write off any extra debt.

In that case, you would only lose the money you had deposited with the broker.

It’s important to always check the small print before choosing a broker. 

What’s the best case scenario?

The best case scenario is when you use margin to benefit from the significant gains margin trading can bring, while avoiding potentially magnified losses.

You trade cautiously, using limit orders rather than market order, or with stop-loss orders in place to limit individual losses. You monitor your trades and close loss-making orders quickly to avoid a margin call.

What is a margin call?

A margin call is a warning that your trades have gone against you and you no longer have enough funds to cover your losses. If you believe the assets you are trading will rebound in your favour then you should add more funds to your account. If you think the prices will continue to go against you, you should close your losing trades at once.

When you receive a margin call, the worst thing you can do is to do nothing. This will lead to margin close out where your broker closes your trades and you risk losing everything.

A margin call happens when the amount of equity you hold in your margin account becomes too low to support your trades and other borrowing. 

In other words, it means that the company is about to reach the maximum amount it can lend to you, and you must add funds in your account or close positions to stop possible losses.

The Capital.com trading platform sends about 38,500 margin call emails to clients every day.

You can put in safeguards to prevent a margin call from happening, such as a stop order. The best traders prepare for all eventualities because they recognise that markets can be volatile and unpredictable. 

The Capital.com trading platform sends about 38,500 margin call emails to clients every day.

Tips to avoid margin call

To avoid margin calls, there are a few things you can consider for your account.

  1. Fund the account: The easiest option is to fund your account by adding more money. You’ll have more breathing room for your positions to play out. This is particularly relevant if you feel confident the price move against you is short-term and is likely tol rebound. If the price does not rebound, however, you will have lost more money.

  2. Position size: If you have an account with limited funds, you can’t afford to take big positions. Maybe you want to take a position that is too big for your account because you are so sure this one is going to work out. If it goes against you, you’ll find yourself in a margin call much quicker than if you had stuck to your normal position size. So whenever you take a position, make sure you give yourself enough breathing space in case the market goes against you. 

  3. Too many positions: Let’s say you have a small position. The market starts going against you. But you’re fine, you have enough money in your account for the price to keep going down for a while before you get in a margin call. You’ve done all your analysis and this time you don’t want to miss out. Now it is cheaper to buy so you think, let me buy another position. This is called averaging in. Now your aggregate Buy price of the two positions is lower than your original one. You’re happy and can’t wait for the market to turn and potentially get even bigger returns. Some traders average in multiple times so that they end up with several open positions in the same market that are all in the same direction. The problem here is that if the market continues to go against you, your free capital gets eaten up very quickly. Your position is much bigger now, so your margin requirements are also much bigger. Keeping your position size small and avoiding multiple positions in the same market can help you to stay away from margin calls.

  4. Too many markets: If you open multiple trades in different markets, it will be harder to keep track of each of them. If several trades move against you at the same time you may find your maintenance margin eaten up rapidly. Focus on assets you can monitor and restrict the number of open positions at any one time.

  5. Stop losses: A great risk management tool is a stop loss. By using stop orders you know in advance how much you’re willing to risk on each position. It helps you to stay away from high-stress situations in margin calls where you have to make on the spot decisions.

  6. Trading over news: If you trade any product that is scheduled to have news released that will affect its price, there is a much greater chance for you to end up in a margin call. Why? Because the price will move much faster than usual. For shares this may be when the company releases its quarterly earnings. For forex, non-farm payrolls can be such an event. For oil, this can be when OPEC meets. Each product has these events and you should find out what moves your product and either be prepared or close your position before the price move is triggered.

  7. Volatility: If you trade a product that moves up and down a lot, which we all want to do as this is the exciting part of trading, you have to be ready for the consequences. The best example here is trading crypto (not available to UK Retail clients). Anyone who has traded bitcoin, Ethereum or dogecoin has gone through this experience before. You can be up quickly but your account can also be down dramatically just as fast. If you decide to trade these products, make sure you have enough funds in your account, take positions suitable for your account size and have stop losses in place to prevent you from having a margin call.

What is margin closeout?

Margin closeout is a safety net to protect you from spiralling losses. At all times, you should have enough funds in your margin account to cover all your trading positions. This is a 100% maintenance margin. 

Margin closeout happens when your loss-making positions grow to the point where you only have enough maintenance margin to cover 50% of your losses.

If your broker offers a guarantee to limit your losses to the amount you have deposited, the margin closeout also protects the broker from further losses. If your broker doesn't offer this guarantee, then you will still owe your broker money after closeout.

Every margin trader has a margin closeout level. Understanding these levels can help to protect you from losses from any trading position you have. Look for your margin level on your trading platform. The closeout level changes as your trades and asset prices fluctuate, so keep an eye on your margin level all the time.

How is margin closeout calculated?

The margin closeout value is calculated using the balance in your account and your unrealised profit or loss from all your open positions, calculated using the current midpoint rates. If your trades are in different currencies they are all converted into the currency of the account.

Your unrealised profit or loss (UPL)  is calculated using the following calculation.

In a long position this is 

(Current Bid price - open Ask price ) X Quantity

In a short trade this is

(Open Bid price - current Ask price) X Quantity

Profitable and loss-making positions offset each other. But if the sum of your trades puts you overall in a loss-making position, that total must be more than covered by the money in your account. This is 100% overall margin.

You can see your margin percentage in the app and on the website trading platform. When you signed up, you committed to actively monitoring this and keeping it above 100%.

Margin closeout happens when you no longer have sufficient funds deposited to maintain your trading positions. We close out your positions to protect you from unlimited losses, and to protect ourselves from unlimited liability.

Consider these guiding levels:

  1. Good cover (more than 100%): If the margin level is more than 100% then you have sufficient cover to keep all your positions open and there is no need to add further funds at the moment

  2. Not so good (75% – 100%): When your margin level dips under 100% you will get a margin call - asking you to take action, either to close positions or top up the funds in your account

  3. Automatic closure and warning (50% and below): This occurs when your margin level gets near to the 50% threshold. It is the range where you can expect to be closed out. 

  4. Close out without warning: A sudden market movement affecting your open positions means your maintenance margin suddenly slumps to 50%. Your account is closed out without a warning being given because there simply is no time to send you one. 

In volatile markets there are sharp price movements. For that reason, you may receive three margin call and margin closeout emails within a very short period, causing an undesired closeout.

If a closeout happens, your broker will begin closing your positions until your margin account again reaches a level of around 75%. This will happen automatically, which is why it is better to be prepared for sudden market volatility. You can’t control price movements of markets but you can add stop limits to prevent the possibility of close outs. 

The closeout process begins with the following order:

  1. Pending orders

  2. Negative open positions closeout

  3. Positive open positions closeout

How margin closeout works

If you have failed to respond to a margin call or, despite topping up your overall margin your positions continue to worsen and your overall margin reaches 50%, your broker will begin closeout.

This means your broker will try to close your open position as fast as possible using whatever prices are available at that time in the market. You will miss the opportunity for your trades to bounce back; they will be closed in the loss-making position they are in. 

The worst-case scenario is that you have a trade in an asset whose price is falling rapidly. For example, a share in a company that has announced it has lost its biggest customer could halve in value in a day.

There might be few buyers and your broker might have to sell in several small batches at lower and lower prices, compounding your losses.

You could lose your entire maintenance margin and still owe money, unless your broker has some kind of guarantee to prevent this happening - as Capital.com does for retail clients.

If the price then bounces back, it will be too late for you to profit because your position will have been closed out. You would have needed to top up your funds to avoid closeout.

Margin closeout facts

These statistics come from users of the Capital.com trading platform and app.

  • 87% of traders have had a margin call

  • 78% of margin calls are resolved by quick action by the trader

  • 12% of margin calls lead to margin closeout

  • 50% of traders have had a margin closeout at some point when trading

  • 82% happened when the trader was going long and asset price fell

  • 18% happened when the trader was going short and the asset price rose

  • Cryptocurrency (not available to UK retail clients) was the asset class most likely to lead to margin closeout

  • Gold was the single asset that led to the most margin closeouts

How to recover from margin closeout

A margin closeout is never a nice experience, but it is vital to think of it as a learning curve and recover. Remember, you are not alone. Among users of the Capital.com trading platform, half have experienced a margin closeout at some point. 

Every day we have to close out between 800 and 3,000 clients whose trades have gone badly against them. This is for our customers’ protection.

It’s not the end of the world. Look back on your trade and see whether you could have done things differently to prevent a close out. This will help you recover from a margin close out and make it less likely to occur in the future. 

Monitoring your account and keeping an eye on your open positions is also important. Long-term traders could hold a position for several months, but if you are a beginner it’s useful to learn how to time your trades.  But even professionals get it wrong sometimes.

Using an efficient, fast-loading trading app to follow your trades could save you lots of frustration. When you get a margin call, you must be able to react as fast as possible and decide if you want to add more funds in order to keep your trades open.

50% of clients (between 800 and 3,000 each day) experienced a margin close out.

Understanding what margin is and how it works is the first step to avoid it. To check if you understand the basics of trading on margin ask yourself the following questions:

Could you have used a stop loss? 

A stop-loss order prevents you from taking further losses when your trade dips below a certain price. You decide the maximum loss you are prepared to accept and set the stop loss accordingly. If you are reading this because you still don’t understand margin well, you probably need to use a stop-loss order.

Should you have closed positions earlier?

Using a fast-loading app and monitoring your positions could help you prevent a margin close out. Seeing the price swing against you, you are more likely to decide to close your positions earlier.

Should you have added more funds?

To avoid margin close out some traders prefer to add to the maintenance margin requirement. This might be because you have more open positions than usual so you need to add more funds to recognise that. If you feel confident the price move against you will rebound, adding more funds is an option. But beware, if you are wrong, you risk losing more money.

Did you see your trade go the wrong way before recovering? 

This is a common experience and often a user blames a broker for their own mistake. If the price later went in your direction, then the issue may have been that you simply did not have enough funds in your account to deal with the market movements. In this case, maybe you should have topped up your maintenance margin account.

Did you underestimate price volatility? 

A good trading app will offer detailed charts with the historical volatility of stocks. Studying the charts and the price movements will help you determine the relative risk of a potential trade. But remember that past performance is no guarantee of future performance. Volatile assets risk fast and large price swings. Be prepared.

Did you understand your broker’s margin requirements and margin maintenance?

As we mentioned earlier, your broker will close out your trade if your maintenance margin reaches 50%. You can check your margin requirements in the app.

Did you hold positions overnight? 

Holding positions overnight exposes your account to risks as well as costs (swaps). Around the open and close there is often increased volatility at times when you might not be watching the asset.

Were you overexposed? 

You may have seen an opportunity to trade in an asset that you were sure was heading in a particular direction. Rather than going full tilt, it may be worth considering balancing your risk in other products or assets, so your profit or loss is not decided on one asset alone. That way you can protect yourself from major shocks in the market.

What else do I need to know about margin?

Keep in mind that the maintenance margin on your account can be changed by a broker at any time. These are usually not ‘human’ decisions as most trading platforms are run on software that makes automated decisions. 

Successful internet trading also relies on the swift execution of any trade. Web connection, software and hardware need to be reliable, and the risk of equipment failures anticipated.

Keep in mind, too, that there might be modest account commissions and interest to be paid. These costs are deducted from any profits.

Benefits and risks of margin trading

The benefits of trading on margin can be akin to turbo-charging a car. Your ‘engine’ (or buying) power is dramatically boosted for comparatively little initial cost – magnifying and intensifying performance. 

This goes both ways, it supercharges both wins and losses. Margin trading gives traders greater exposure to price changes and this increases both risk and potential returns. 

In a bull market, the compounded gains can potentially be spectacular. But, in a bear market, margin accounts for CFD trading also enable you to ‘short’, so you can potentially gain from downwards price movements, not just price rises. 

When markets are slow, margin trading can allow traders to attain greater profits from these small movements. Any unexpected volatility can increase your gains but also magnify your losses. 

When used responsibly and supported by careful research, margin trading can be potentially highly profitable. But, it can also cause heavy losses and in the worst scenario lead you to blowing up your trading account. This is why trading on margin is something that should not be rushed into, especially for new traders. 

Margin risks

To be clear, margin trading involves risk and any margin loan (and interest) has to be repaid regardless of the value of the securities you buy on margin.

By definition, leverage trading means small or modest market movements can result in significant profits and losses. That means you should keep a close eye on your account at all times. In particularly volatile markets the price can move sharply and rebound within hours. 

This may lead a trader to wonder why they had a margin call, but it occurred because they did not have the funds required to keep the trade in play. 

Margin trading is inherently risky and you should make sure you are fully aware of all potential outcomes. 

Managing risk

You need to keep an eye on the trades and close them if they move against you or put in place automatic stop orders to close orders early. Experienced traders plan for all price movements and set smart stop limits at price ranges where they know a trade is going against them. 

Bear in mind that many novice traders start out with too little in their margin account, which can, in some circumstances, exaggerate their losses. Holding the bare minimum in your account increases the chance that your account will receive a margin call. Hold a little bit more back in reserve so your account can sustain small market swings.

You do not want to be in a position where your broker has to sell your holdings quickly at a highly disadvantaged price with no chance for the price to recover. No one wants to see their positions closed automatically, and therefore you should ensure your account is sufficiently funded.

Be advised:

  • Different markets have their own distinct type of risk.

  • Price volatility can be profound, especially when there is significant market, company or economic news, from a huge variety of sources.

  • Currency volatility can have a huge effect on the balance of your account or transaction.

  • The currency or forex market is lightly regulated. While highly ‘liquid’ it’s not as transparent as traditional stocks and shares.

  • Margin trading isn’t just used to trade smaller, less well-known stocks. It’s also used to trade blue chip stocks, which can introduce new risk levels to more traditional and long-standing stocks.

  • Many city fund managers fail to outperform the market and most ordinary investors face the same challenges and conditions.

Margin FAQs

We implement margin closeout when the funds in your account drop to 50% of the amount needed to cover your loss-making trades. You should have in your maintenance margin account enough to cover 100%. When it drops below that we send a margin call requesting more funds. We send a second margin call if it drops to 75%. At 50% we begin closeout. Highly volatile assets can cause your account to drop almost instantly from 100% to 50%, triggering closeout.

If you receive a margin call, add funds to your account and/or close your loss-making trades. Do not ignore the margin call email.

When you trade on margin you must have 100% of potential losses from trades covered by the funds in your account. If this drops below 100% you’ll get a margin call. If it drops to 50%, this means you only have half the money necessary to pay your debts. Your broker will closeout your trades. A closeout is a safety net for when your trades go badly wrong.

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