I’m not a pro forex trader, I want to know what margin call level is? Why different account type has got different margin call level? Is it better that our account has a higher level or lower? Would you please help me? Thanks.
Margin call is a broker's warning to a trader that the level of equity in the account is running low relative to the used margin. For example, if the margin call level is 100%, you will get a margin call once Equity / Used Margin <= 100%, i.e. account equity becomes equal or lower than used margin.
Normally, you would want your broker's margin call level as low as possible. On the other hand, a higher margin call level helps careless traders (who forget to set their stop-losses) to preserve at least a small part of their capital in case of a strong adversary movement in the market.
Margin call is the broker’s instruction to the trader to add more funds to his account in order to maintain the required margin for the trade or take the risk of getting all the open positions closed out in order to save broker’s capital used for leveraging the trade. Investors receive the margin call from the broker when one or more of his securities he bought decreased in value beyond a certain level. Then the investor either has to deposit more amounts or sell off his assets.
Margin call is the warning that the trader is about to lose his deposited amount and to continue his trades, he would need to add fund into his trading account.
The different account with different margin call level helps you to decide which account to choose according to your trading requirements. If you don’t want to enter any Stop losses and you are a careless trader, then you would require high margin call level. On the other hand, if you enter stop losses and are sure about your trades, you would require low margin call. So, there are no obstacles in your trading style.
In layman’s language, margin call notification level means, if equity drops below 70% of used margin then system gives margin call notification. For e.g. a broker claims that your account position applies with margin call & stop out level of 70%/50%. It means that when your account faces the loss of 30%, you would get a warning which is a margin call that your positions will be squared when losses level reach to 50%. It is better to have not very high margin call because you will not get enough margin to trade. However, very low margin call can be very risky and incur huge losses.
No, actually this is not correct. Your account could be losing 60% and not get a margin call given your condition of 70% margin call level at a broker.
For example, you have $1,000 account and use $200 margin to open a trade. At some point, the floating loss reaches $600, which is 60% of your account. Equity level is then $400 / $200 = 200% - not enough for a margin call.
A margin call is safeguard to protect the trader from losing his 100% amount or even more than that. It happens when your equity falls below the used margin. When a margin call is hit, your open positions are automatically closed on the market price by the broker. you can go for higher margin call if you do not place stop loss to control your losses but if you use stop loss in your account , you are well protected and can go for low margin call.