How can you avoid a margin call?

Before you open a trade, you can work out how far the price can move against you before your account reaches your broker's margin call line. Each method in this lesson makes that distance longer, or closes the trade before it is used up.

The lesson follows one $1,000 account through several choices. All prices, leverage settings and thresholds are round illustrative numbers.

What decides how close you are to a margin call?

Your platform shows a percentage called margin level. It compares the money in your account with the deposit your open trades tie up.

Margin level = equity ÷ used margin × 100%

Equity is your balance plus or minus the profit or loss on open trades. Used margin is the deposit your broker holds while those trades are open. A margin level of 200% means equity is twice the margin in use.

Your broker issues a margin call when the margin level falls to a set threshold, and starts closing positions if it keeps falling to the stop out level.

This lesson uses a 100% margin call. Brokers choose different numbers, so check your own broker's levels before you rely on any figure here.

Take one trade as the starting point. Your account holds $1,000 at 1:100 leverage, and you buy 0.50 lot of EUR/USD at 1.10000. Spread and other costs are left out to keep the sums clean.

1. A standard lot is 100,000 units, so 0.50 lot is 50,000 euros, worth 50,000 × 1.10000 = $55,000.
2. Used margin at 1:100 is $55,000 ÷ 100 = $550.
3. Margin level at the start is $1,000 ÷ $550 × 100% = 181.8%.
4. Each pip is worth 50,000 × 0.0001 = $5.
5. A 100% margin call comes when equity falls to $550, a loss of $450.
6. That loss is $450 ÷ $5 = 90 pips, so a fall to 1.09100 triggers the call.

Some platforms recalculate used margin as the price moves, while others fix it at the opening rate. The example holds it at $550 to keep the arithmetic easy to follow.

EUR/USD can travel 90 pips in one busy day, so this trade leaves little room.

Why does a smaller position help so much?

A smaller trade improves both sides of the margin level sum. It ties up less margin and it loses less per pip, so the call moves away quickly.

The distance to the call for any trade comes from one formula, with the call level written as a decimal (100% is 1.00):

Pips to margin call = (equity minus call level × used margin) ÷ pip value

Here it is for three sizes in the same $1,000 account, with EUR/USD at 1.10000 and 1:100 leverage:

Going from 0.50 to 0.20 lot cuts the position by 60%, yet the room before the call grows from 90 to 390 pips, more than four times as much.

How small is small enough depends on where your stop sits and how much you plan to risk. The position size lesson works that out, and the margin calculator shows the margin for any pair and size.

How does a stop loss keep you away from the call?

A stop loss is an order that closes your trade at a price you set in advance. If it sits well inside the margin call distance, the trade ends with a small loss while your margin level is still high.

Take the 0.20 lot trade and place a stop 40 pips below the entry, at 1.09600:

1. Loss at the stop: 40 × $2 = $80.
2. Equity after the stop: $1,000 minus $80 = $920.
3. Margin level just before the stop fills: $920 ÷ $220 × 100% = 418.2%.
4. The 100% margin call would sit 390 pips below entry, at 1.06100, with a loss of $780.

A stop does not promise its price. When the market jumps over a weekend or on a big news release, the order fills at the next available price, which can be worse than the one you set. That gap is called slippage.

A wide distance between your stop and the call leaves room for that kind of fill. Moving the stop further away after a trade turns against you gives that room away.

Is your free margin enough for every open trade?

Free margin is equity minus used margin. With a 100% margin call, free margin is exactly the loss you can take before the call. In the 0.50 lot example it was $1,000 minus $550 = $450, the same figure as above.

Every new trade draws on that pool. Open three 0.20 lot trades on EUR/USD and you use 3 × $220 = $660 of margin, leaving $340 free, while each pip now costs $6.

The call is then $340 ÷ $6 = 56.7 pips away. Each trade looked small alone, yet together they sit closer to the call than the single 0.50 lot trade did.

Different pairs can add up the same way. EUR/USD and GBP/USD often move in the same direction, so buying both works much like one larger bet against the US dollar. The correlation lesson shows how to check.

Adding to a losing trade drains free margin from both ends. Each new position takes more margin while the open loss is cutting your equity.

A deposit raises equity and lifts the margin level at once. If the trade keeps falling, the new money is exposed to the same loss, so spare margin planned in advance is safer.

The margin buffer lesson covers how large that spare margin could be for your account.

Does changing your account leverage help?

Account leverage sets how much margin each trade needs. It does not change what a pip is worth. Here is the same 0.20 lot trade, $1,000 account and EUR/USD price at three settings:

For the same trade, higher leverage holds less margin, so the call moves further away. Lower leverage does the opposite and brings the call closer.

The loss per pip is $2 in every row. Higher leverage also lets you open far larger trades with the same money, and a larger trade brings the call right back.

The effective leverage lesson measures your position size against your equity. The leverage you can choose depends on your broker and on the rules where you live.

Which habits keep your margin level healthy?

• Work out the pips to the call before you open a trade, and check your margin level again while trades are open.
• Trade smaller, or close positions, before major scheduled news and before the weekend if you would not accept a price gap.
• Count swap on positions held overnight, because a daily charge lowers your equity a little each night.
• Read your broker's margin terms, because some brokers raise margin requirements around big news or weekends, which lowers your margin level without any price move.
• Set a price alert well above the margin call price, so you hear about trouble while you still have choices.