What Is a Margin Call? How It Happens and How to Avoid One

Leverage lets you control a large position with a small deposit. The trade-off is that losses come out of that deposit quickly. A margin call is the warning that your account is running out of room, and understanding it is essential before trading with leverage.

The four numbers to watch

• Balance: your account value excluding open trades.
• Equity: balance plus or minus the profit or loss on open positions.
• Used margin: the deposit set aside to keep your open positions running.
• Free margin: equity minus used margin, the room you have left.

Margin level = equity ÷ used margin × 100%. This single percentage tells you how close you are to trouble.

What triggers a margin call?

As losses grow, equity falls while used margin stays the same, so margin level drops. When it falls to the broker's margin call level, you receive a warning. If it keeps falling to the stop-out level, positions start being closed automatically, usually beginning with the biggest loser, to stop your equity going any lower. The exact levels are set out in your account terms and shown in the platform.

An example

You deposit $2,000 and open 1 lot of EUR/USD at 1.0850 with 1:30 leverage. Required margin is about $3,617, more than your balance, so the trade can't be opened at all. Reduce the size to 0.30 lots and margin falls to about $1,085.

With $2,000 equity and $1,085 used, your margin level is about 184%. Each pip is worth $3. A 100-pip move against you costs $300, cutting equity to $1,700 and margin level to about 157%. A 300-pip adverse move would take equity to $1,100 and margin level close to 100%, leaving almost no free margin. You can model this with our margin calculator.

How to avoid a margin call

1. Use a stop-loss on every trade. A stop caps each loss long before margin becomes a problem. See how stop-losses work.
2. Size positions from risk, not from available margin. Just because you can open a large position doesn't mean you should. Use the position size calculator.
3. Keep a buffer of free margin. Many traders aim to use only a fraction of their equity as margin at any time.
4. Watch correlated positions. Several trades on USD pairs can move against you together.
5. Be careful around news and weekends. Gaps can move price sharply before you can react.

What to do if you get one

Don't add new positions to "win it back". Your choices are to close or reduce losing positions, or deposit more funds. Closing positions locks in the loss but protects the rest of your account; depositing more only makes sense if your original trade idea is still valid and you've reassessed the risk.

Key takeaways

• Margin level = equity ÷ used margin.
• A margin call is a warning; a stop out closes positions automatically.
• Stop-losses and sensible position sizes are the best protection.

CFDs are leveraged products and you can lose your money. Read our Risk Disclosure. This article is for education only and is not investment advice.