A margin call is what happens when the amount of equity you hold in your account falls below the margin required to keep your trades open.
What is a margin call?
A margin call is a warning that your trades have gone against you and you no longer have enough funds to cover running losses.
It’s a notification that you need to take action to avoid your positions being automatically closed by your broker.
Our margin-call process
We aim to follow the process outlined below, and will send margin call notifications wherever possible.
- If your equity drops below 100% of the required margin, you’ll receive a margin call.1 You will no longer be able to open new trades or place orders.
- If your equity to margin ratio drops below 75%, you’ll receive a second margin call.1 You still will not be able to open new trades or place orders.
- If your equity falls to 50% or less of the margin amount required, our automatic margin close-out process will be initiated.
Margin call example
Let’s say you have $3,500 in your account, and you want to go long on Company A with a margin rate of 1:2. One share of Company A is trading at $100, and you’d like to buy 50 CFDs. That equates to $5,000 worth of stock, so with a margin of 1:2 you’d need to put down 50%, or $2,500. The rest of the money is provided by your broker. There are $1,000 of available funds left in your account.
- The price of Company A shares falls to $78. This means the value of your position declines to $3,900 (50 x $78), and your equity becomes $2,400 ($1,400 remaining on the position, plus the additional $1,000 in your account). Your current equity-to-margin ratio is therefore 96% ($2,400 / $2,500 x 100). This means you’ll receive your first margin call, as your equity is below 100% of the $2,500 required margin.
- Imagine that Company A’s share price goes down further, taking the value of your position to $3,300. Your equity is now estimated at $1,800 ($800 remaining on the position, plus the additional $1,000 in your account). This is 72% of the required margin, which is below our second margin-call threshold of 75%. You’ll therefore receive a second margin call.
- If the value of your position falls below $2,750, your equity will have dropped below 50% of the required margin (below the $1,250 equity level). Our margin close-out process will begin and your positions will start being closed automatically.
The margin close-out process
When your loss-making positions grow to the point where you only have enough equity to cover 50% of your losses, our margin close-out process starts automatically to protect you from spiralling losses. Please note the automatic margin close-out process is a regulatory requirement, and cannot be deactivated.
The automatic close-out applies in the following order until your equity is above 50% of the margin requirement.*
- All pending orders are closed
- All open positions with negative UPL (unrealised profit / loss) on open markets are closed*
- All remaining positions on open markets are closed*
- All remaining positions are closed as soon as the relevant markets open
*Please note that not all markets are open at the same time, so a profitable trade may be closed before a losing one.
How to reduce the possibility of receiving a margin call
There are some sensible steps you can take when trading to lessen the possibility of receiving a margin call.
- Avoid over-leveraging: Ensure there is sufficient equity in your account to act as a buffer if the markets move against you
- Diversify: Trade a variety of different asset types to spread out your risk
- Track: Keep an eye on market prices, either manually or by using the tools available on our platform such as price alerts and watchlists
- Manage risk: Apply stop-losses2 and take-profits to your positions to stay in control of your exposure
How to avoid a margin close-out
Once you’ve received a margin call, you can take these actions to bring your margin up to 100% of the amount we require.
- Add some funds to your account
- Cancel any pending orders
- Close some or all of your open trades
1 Communication around margin calls. Please note that we can’t guarantee to contact you when you’re on margin call. It’s your responsibility to ensure there are enough funds on your account at all times to cover your margin requirement, and we’re under no obligation to keep you informed about this. Any attempt to contact you will be as a courtesy only, and may be by telephone, email or text message.
Markets can move very quickly, which may mean that we are unable to contact you before your positions get closed. If your equity drops from above 100% of margin to below 50% in less than five seconds, for instance, we will not be able to contact you and your positions will be at risk of being closed.
2 Please note that basic stop-losses are not guaranteed and can be subject to slippage. You can choose to place guaranteed stops to place an absolute limit on your losses, but these will incur a charge if triggered. You can see these charges on our charges and fees page.