What is a margin call?
A margin call is a notification from a broker, such as KlasFX, to a trader when the trader’s account falls below the required margin level to maintain open positions. It typically prompts the trader to deposit additional funds or close out some positions to meet the margin requirements and avoid automatic liquidation of their positions.
A margin call occurs when a trader’s account equity (the total value of the account including profits and losses) falls below the required margin level to support their open positions. When this happens, the broker sends a margin call notification to alert the trader of the deficiency.
Here’s how a margin call works with KlasFX:
Margin Requirement: When traders open positions, they are required to maintain a minimum amount of margin in their trading accounts to cover potential losses. This margin is typically expressed as a percentage of the total value of the positions (margin requirement).
Account Equity: As the market moves, the value of the trader’s open positions fluctuates, affecting their account equity. If the account equity falls below a certain threshold set by KlasFX (usually the margin requirement), a margin call is triggered.
Notification: KlasFX notifies the trader of the margin call through various means, such as email, SMS, or within the trading platform. The notification informs the trader that they must either deposit additional funds into their account or close out some positions to restore the required margin level.
Response: Upon receiving a margin call, traders have a limited time to take action. They can choose to deposit additional funds into their trading account to increase their available margin or close out some or all of their positions to reduce their exposure and free up margin.
Liquidation: If the trader fails to meet the margin call requirements within the specified time frame, KlasFX may proceed with automatic liquidation of some or all of the trader’s positions to cover the margin deficiency. This liquidation process helps protect the broker from losses and ensures the integrity of the trading system.
Margin calls are an essential risk management mechanism in trading, helping to prevent excessive losses and protect both traders and brokers from potential financial instability. Traders should always monitor their account equity and margin levels closely to avoid margin calls and manage their positions responsibly.