URICH2.com

You can earn cashback on every trade

no increased commission or spread, just the original trading cost offered by brokers

Get the best commission rebate rate with us

Manual of avoiding margin call in forex trading
Source: | Author:finance-102 | Date2023-02-23 | 277 Views | Share:
A margin call is a notification from your forex broker that you need to deposit more money into your trading account to maintain the minimum margin requirement. If you do not meet the margin call, the broker will close some or all your open positions to prevent further losses.

A margin call is a notification from your forex broker that you need to deposit more money into your trading account to maintain the minimum margin requirement. If you do not meet the margin call, the broker will close some or all your open positions to prevent further losses.


Use appropriate leverage: Leverage is a double-edged sword in forex trading. It amplifies your potential profits, but it also magnifies your losses. If you use too much leverage, even a small price movement can wipe out your account. To avoid a margin call, it's crucial to use leverage appropriately. Most forex brokers offer leverage ratios ranging from 50:1 to 500:1. The higher the leverage, the more risk you take on. Generally, it's recommended to use a leverage ratio of 10:1 or less.


Monitor your account regularly: Keeping an eye on your account balance, open positions, and margin level is critical in forex trading. You can check your account status through your broker's trading platform or mobile app. The margin level is the ratio of your account equity to the used margin. When the margin level falls below 100%, it means you're using up all your available margin, and you're at risk of a margin call. To avoid this, you should deposit more funds or close some of your open positions.


Set stop-loss orders: A stop-loss order is an automatic instruction to close your position when the price reaches a certain level. Setting a stop-loss order helps you limit your losses and prevent your account from reaching the margin call level. For instance, if you buy a currency pair at 1.2000 and set a stop-loss at 1.1900, your trade will automatically close if the price falls to that level. This way, you can limit your potential loss to 100 pips or less.


Manage your trades properly: Managing your trades properly involves having a trading plan that includes entry and exit points, risk management strategies, and position sizing. Before entering a trade, you should know how much you're willing to risk and how much you expect to gain. It's also essential to diversify your portfolio by trading different currency pairs and not overtrading. Overtrading can lead to emotional trading and increase your risk exposure.


Maintain sufficient funds in your account: To avoid a margin call, you should maintain sufficient funds in your trading account. This means having enough money to cover any potential losses and margin requirements. Depending on your broker's margin requirements, you may need to deposit a certain amount of money to open a position. It's recommended to have at least 2% to 5% of your account balance as available margin.


In conclusion, avoiding a margin call in forex trading requires discipline, risk management, and monitoring your account regularly. By following these steps, you can minimize your risk exposure and improve your chances of success in forex trading. Remember to use leverage cautiously, set stop-loss orders, manage your trades properly, and maintain sufficient funds in your account.