What Is a Margin Call? How to Avoid It
A margin call is your broker telling you the account cannot support your open positions. At stop-out, trades close automatically.
A margin call happens when your account equity falls below the level your broker requires to keep your open positions running. It is a warning — and in many cases, it is followed automatically by a stop-out that closes your trades.
How margin works
When you open a leveraged position, a portion of your account balance is set aside as collateral — called used margin. The rest remains as free margin, available for new trades or to absorb losses.
Equity = balance + unrealised profit/loss on open trades
Free margin = equity − used margin
Margin level = (equity ÷ used margin) × 100%
What triggers a margin call
When losing trades reduce your equity, the margin level falls. Most brokers issue a margin call warning at 100% margin level. If you do not add funds or close positions, the broker initiates a stop-out — automatically closing your open positions — typically at 50% margin level.
The stop-out closes the largest losing position first, then the next, until margin level recovers above the threshold.
A simple example
$1,000 account, 1:100 leverage, one standard lot EUR/USD position.
- Used margin: $1,000 (the full account)
- Free margin: $0
- Any loss immediately triggers a margin call
This is extreme — it illustrates why using the full available leverage is dangerous. At full leverage, a single pip against you reduces your margin level.
What to do when you receive a margin call
Option 1: close one or more positions to reduce used margin and raise the margin level.
Option 2: deposit additional funds to increase equity and margin level.
Option 3: do nothing — stop-out occurs automatically.
Option 3 is the worst outcome because the broker chooses which positions to close, often at the worst possible moment.
How to avoid margin calls
- Keep effective leverage low — most professional traders use well below 10:1
- Size positions using a risk percentage formula, not maximum available leverage
- Never open positions that use more than 20–30% of free margin simultaneously
- Set a personal rule: if free margin falls below a threshold, close positions manually
Frequently Asked Questions
Is a margin call the end of my account?
Not necessarily. It is a warning that positions are too large. If you act quickly — close positions or add funds — the account can survive. Stop-out is the point at which the broker acts for you.
Does a margin call affect my credit score?
No. Forex margin is not a loan in the traditional sense. Losses are limited to your deposited balance — you cannot owe the broker more than you deposited, with most regulated brokers offering negative balance protection.
How is margin call level different from stop-out level?
Margin call is the warning (typically 100% margin level). Stop-out is the automatic close (typically 50%). Both levels vary by broker — check your account agreement.
Can I be margin called on a demo account?
Yes, if the demo replicates live conditions. Some demo platforms set very high margin call levels to prevent this, giving beginners false confidence about position sizing.
How do prop firms handle margin calls?
Prop firms do not use traditional margin calls. Instead, they use hard drawdown limits — daily and total. Breaching these limits terminates the funded account immediately, regardless of open positions.
Related Articles
- What is Margin in Forex
- Position Size Calculator Guide
- Stop Loss Placement
- What is Leverage in Forex
Not financial advice. This article is educational. Trading carries substantial risk and you can lose more than your deposit. See our risk disclaimer.
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