Say You Hate Me

What Are Margin Calls in Forex Trading?
Margin calls are a generally confusing idea because it usually involves excessive amounts of money. To first understand margin calls as a forex trader, you need to understand margin trading and how it effects your profiting power.

When you first start out for trading, you're going to be getting service from a broker. Often these brokers will offer you what is called a margin account. The reason they're popular is that the broker lets you use a bunch of their money with your trades. I'll first say that this isn't a loan. It's only technically a loan when you're doing good profitable trades, but if you're bad, the broker will step in to protect their money.

What a margin account will give you is leverage. It will allow you to trade $100,000 if you put a $1000 in your account as a deposit and you're free to move around that $100,000. There is no interest charged on this loan. I know what you're thinking, "That's free money." No it's not. It's leverage. If you can't profit with a little bit of money, you're not going to profit with extra money.

The concept of the margin call materializes whenever you start losing money. Obviously a broker isn't going to give you $99,000 of their money for you to just lose. They're watching your account and seeing what you're doing. When you start to approach losing your deposit (a $1000 in this case), they'll do a margin call. Basically all their saying is "Increase your profit or we're cutting the losses now to save our money".

That's all that margin calls are. Margin trading definitely isn't free money, but away to leverage good solid trading. A great way to avoid running into margin calls is to not use all the money you're given. If you use a small percentage of it like 10-20%, you will rarely ever run into the point where you lose a total amount equal to your deposit.