Margin call in trading: meaning, calculation and examples

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Rebecca Cattlin
By :  ,  Former Senior Financial Writer

A margin call tells you when your leveraged trading account balance is no longer enough to cover your open positions. Discover more about margin calls including the calculation and an example of how margin calls work.

What is a margin call?

A margin call is an alert that is triggered when the percentage of equity in their account falls below their broker’s requirement – usually as a result of one or more losing trades.

When you trade with leveraged instruments, such as CFDs, you’ll need enough capital to cover the two different types of margins that apply:

  1. Deposit margin – which is the amount you’ll pay to open the position
  2. Maintenance margin – this is the capital that’s needed in your account to keep the position open

You can use the margin calculator in our platform to view the margin that is applicable for the trade you wish to set up.

When a trade starts to lose money, depending on the cash balance of your account, your maintenance margin might need topping up to return your balance to the minimum required level.

When your maintenance margin shrinks, you’ll then be placed on margin call. It’s important to note that margin calls aren’t always delivered via a notification – such as an email or SMS – but are usually an automatic in-platform action and you will have to monitor your margin indicator to keep track. We’ll send you notifications at 100% and again if it falls to 75%.

What happens when you’re on margin call?

If your margin drops below 100% of your total requirement, then your positions are at risk of being closed. We’ll automatically close you out of trades when it goes below 50% of your total requirement.

Please be aware that during times of high volatility market prices can gap or slippage may occur, which may affect the prices at which your positions are closed out.

To get off margin call, a trader will need to get their account back up to the minimum value of their maintenance margin – either by depositing additional funds or closing positions to reduce the margin required.

CFD margin call example

Let’s say you opened a long CFD position on gold with a total margin requirement of $500, and you currently have $1000 in your account. As it stands, your position is absolutely fine as the account value is twice the margin needed.  

The price of gold suddenly drops and your account value falls to $500, but you’d still have just enough to cover your margin required.

However, if the price fell any further, causing your balance to fall below $500, you would be placed on margin call. At this point, you’d need to start closing your trades or adding more funds to reach $500 again.

If the value of your account fell below $250, which is 50% of your margin requirement, we’d automatically close positions for you.

Margin call calculation

To understand when you could be put on margin call, you can calculate the minimum account value needed to keep your positions running. The calculation for that is:

Minimum account value to avoid margin call = Margin loan / (1 – maintenance margin)

But you can easily check your margin levels with the City Index Margin Level Indicator on our trading platform. The calculation for the margin indicator is determined by the net equity in your account divided by your total margin requirement, multiplied by 100.

You can find out information about margin requirements for each market by clicking on the market 360 for your chosen asset in the City Index platform.

Margin call FAQs

What is margin call for a short position?

Margin call for a short position is triggered if the asset you’re selling appreciates, or moves against you. You'd then be required to deposit additional capital into your account to reach the required maintenance margin level.

What does CFD margin call mean?

CFD margin call means the same as it does for any leveraged derivative, that your account balance has fallen below the required level to maintain your position. If you don’t top up your CFD account with more funds or reduce your position to release funds from the margin, your positions could be closed.

What is margin call in forex?

Margin call in forex is when the market has moved against your position and your margin indicator lever goes below 50% of the margin required to maintain your position. At this point, your position could be closed unless you top your balance up again. Margin calls are more common in forex as the market is more volatile, meaning your account value can change faster.

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