Understanding margin call—also known as liquidation—is essential for anyone involved in forex or CFD (Contract for Difference) trading. This mechanism acts as a critical risk management tool, protecting traders from losing more than their deposited capital. However, it's not foolproof and comes with limitations that every trader should understand. In this guide, we’ll explore what margin call means, how it’s calculated, its advantages and drawbacks, and practical strategies to avoid it.
What Is a Margin Call?
In forex and CFD trading, a margin call occurs when your account equity falls below the required maintenance margin, triggering the broker to automatically close your open positions. This process is designed to prevent losses from exceeding the funds you've deposited.
👉 Learn how to monitor your margin levels effectively and stay ahead of liquidation risks.
The primary purpose of a margin call is investor protection. Without this safeguard, traders could accumulate debts far beyond their initial investment—especially in volatile markets where prices move rapidly.
However, during periods of extreme volatility or market gaps—such as at the start of the trading week when prices "gap" significantly—it may not be possible to execute a margin call in time. In such cases, losses can exceed the available balance, leading to negative equity.
While margin calls offer crucial protection, they shouldn’t be relied upon as a primary risk control method. Sound money management and sufficient capital are key to minimizing exposure.
How Is Margin Call Calculated?
Many new traders wonder: At what point will my position be liquidated? The answer lies in understanding two key values: account equity and required (maintenance) margin.
A margin call is triggered when:
Account Equity < Maintenance Margin
This can also be expressed as a percentage—often referred to as the margin level:
Margin Level = (Equity / Used Margin) × 100%
When this ratio drops to 100% or below, brokers typically initiate liquidation.
Example Calculation
Suppose you open a trade of 1,000 units with a required margin of $5. If your account equity falls below $5 due to unrealized losses, a margin call will be triggered.
So:
- Required Margin: $5
- Margin Call Threshold: $5 × 100% = $5
- If Equity < $5 → Liquidation occurs
Different brokers have varying thresholds. For instance, some platforms may start closing positions when margin levels fall below 100%, while others act earlier.
Advantages of Margin Call
Limits Losses to Deposited Capital
The biggest advantage of a margin call system is that it generally prevents losses from exceeding your account balance. In most cases, you won’t owe money beyond what you’ve invested.
This feature brings peace of mind, especially for beginners who might otherwise face severe financial consequences from poorly managed trades. Without automatic liquidation, traders could end up in debt after sharp market moves.
Disadvantages of Margin Call
May Not Execute in Time During Volatile Markets
Despite its protective role, a margin call isn't always effective. In fast-moving or gapping markets—like during major news events or weekend openings—price jumps can skip over the liquidation threshold entirely.
For example:
- You have a long position with a stop-loss set at 1.2000.
- Over the weekend, economic data causes EUR/USD to open at 1.1850.
- Your equity drops instantly below maintenance margin.
- The system attempts a margin call—but the execution price is much worse than expected, or impossible to fill.
In such scenarios, negative balances can occur unless the broker offers negative balance protection—a feature increasingly standard among regulated brokers.
Additionally, relying solely on margin calls reflects poor risk planning. It means waiting until the last moment before action is taken, which often results in maximum allowable loss.
How to Avoid Margin Call: 3 Effective Strategies
While margin calls protect brokers and clients alike, reaching that stage means your trade has already gone significantly wrong. Here are three proactive ways to avoid liquidation:
1. Add More Funds (Deposit Additional Margin)
Depositing extra funds increases your account equity and temporarily boosts your margin level. While this can delay liquidation, it’s not a recommended long-term strategy.
Why? Because adding money to a losing position—also known as "averaging down"—can amplify losses if the market continues moving against you. Trends often persist once established, so injecting capital without reassessing your strategy may worsen outcomes.
Best practice: Only increase your account size when adjusting overall portfolio risk—not to rescue a failing trade.
2. Close部分 Positions Manually
If you're holding multiple positions, consider closing some manually to free up margin. Reducing exposure helps maintain a healthier equity-to-margin ratio.
However, like depositing funds, this only delays the inevitable if the underlying trend remains unchanged. Moreover, holding onto losing positions drains psychological and financial resources, reducing your ability to take advantage of new opportunities.
Pro tip: Regularly review open trades and exit those no longer aligned with market conditions—even if it means accepting small losses.
3. Set Stop-Loss Orders in Advance
The most effective way to avoid margin call is preemptive risk management through stop-loss orders.
A stop-loss allows you to define the maximum amount you’re willing to lose on a trade. When the price hits that level, the position closes automatically—before it reaches critical margin levels.
Though emotionally difficult (since it locks in a loss), using stop-loss orders preserves capital and keeps you in the game longer.
Many traders fail not because of poor analysis, but because they neglect proper stop-loss placement—or remove them during drawdowns hoping for a reversal. Discipline is key.
👉 See how setting intelligent stop-loss levels can improve your trading performance and reduce stress.
Frequently Asked Questions About Margin Call
What’s the difference between margin call and stop-loss?
A stop-loss is a self-imposed exit strategy set by the trader to limit losses based on analysis and planning. A margin call, on the other hand, is an automatic forced closure executed by the broker when equity falls below required levels. One is strategic; the other is reactive.
Does margin call happen over weekends?
No. Most brokers pause trading between Friday evening and Sunday night (or Monday morning, depending on time zone). During this period, no new trades can be opened or closed—including margin calls. However, if there’s a significant price gap when markets reopen, your account may already be below maintenance margin upon resumption.
Is there a fee for margin call?
Generally, no. Brokers like OANDA do not charge fees specifically for executing a margin call. However, you still bear the cost of any realized losses from closed positions.
What is OANDA’s margin call policy?
OANDA triggers margin calls when the margin maintenance level falls below 100% for both individual and corporate accounts. The platform begins closing losing positions starting with the most unprofitable ones until sufficient margin is restored.
Can I lose more than my deposit during a margin call?
Under normal circumstances, no—especially with brokers offering negative balance protection. However, in extreme market conditions (e.g., flash crashes or major geopolitical events), slippage or delayed execution might lead to negative balances unless protected by regulatory safeguards.
How can I monitor my margin level in real time?
Most trading platforms display key metrics like used margin, free margin, and margin level directly on the interface. Keeping an eye on these numbers—especially during high-volatility sessions—is crucial for avoiding surprise liquidations.
By understanding how margin calls work and integrating proactive risk controls into your trading routine, you can trade with greater confidence and resilience—even in turbulent markets.