What Is a Margin Call? Easy-to-Understand Explanation of Conditions and Countermeasures
When engaging in FX (foreign exchange margin trading), “risk management” is something you cannot avoid. Among the most important aspects of this is the “Margin Call,” known in Japanese as “追証 (Oishō).”
This article explains in simple terms the mechanism, conditions, and countermeasures for Margin Calls in FX. As this is essential knowledge to protect your funds, please read through to the end.
What Is a Margin Call?
A “Margin Call” occurs when losses on an open FX position grow so large that your margin balance falls below the required amount. When this happens, your broker will request an additional deposit of funds to restore the required margin level.
In FX trading, leverage allows you to control larger positions with smaller capital. However, if the market moves against your position, losses also increase. When your margin maintenance ratio falls below a set threshold, your broker will issue a Margin Call notification.
Conditions Under Which a Margin Call Occurs
Although specific conditions differ depending on the FX broker, a Margin Call generally occurs under the following circumstances:
1. Decline in Margin Maintenance Ratio
Most FX brokers set a rule such as “a Margin Call occurs when the margin maintenance ratio falls below a certain percentage.” The ratio is calculated as follows:
Margin Maintenance Ratio (%) = (Effective Margin ÷ Required Margin) × 100
If this ratio drops below the threshold, you must deposit additional margin (Margin Call amount).
2. Sudden Market Movements
Geopolitical risks, economic data releases, and central bank policies can cause sharp market movements in a short time. Such volatility can sometimes trigger a Margin Call even before an automatic stop-out (forced liquidation) occurs.
How to Respond When a Margin Call Occurs
When a Margin Call is triggered, your broker will notify you, and you must deposit the additional required funds within a specified timeframe. Failure to do so may result in all your positions being forcibly closed (stop-out).
Here are the basic steps to take:
- Check the Margin Call notification (via email or trading platform)
- Deposit the required amount by the specified deadline
- After depositing, confirm that the margin maintenance ratio has recovered
If you receive a Margin Call notice, act as quickly as possible to prevent further losses or forced liquidation.
For more details, please also refer to our article explaining the mechanism of stop-outs and how to avoid them.
How to Avoid Margin Calls in FX Trading
To avoid Margin Calls in FX trading, daily risk management is essential. The following methods can help minimize the risk of receiving a Margin Call:
1. Keep Leverage Low
High leverage can amplify profits but also magnifies losses. Beginners should aim for a leverage ratio of 5x or less and trade conservatively.
2. Regularly Check Your Margin Maintenance Ratio
Monitor your margin maintenance ratio regularly while trading. If it falls below 100%, consider closing part of your position or adding more funds to your account.
3. Set Stop-Loss Orders
A “stop-loss order,” which automatically limits losses, is a highly effective tool for avoiding Margin Calls and stop-outs. Always set a stop-loss level at the same time you open a position.
4. Use an Overseas FX Broker with a Zero-Cut System
While domestic FX brokers may require additional margin payments, some overseas brokers offer a “zero-cut system,” meaning you will not be liable for any negative balance. This completely eliminates the risk of a Margin Call.
Consider opening an account with an overseas broker such as EC Markets.
Summary: Understand Margin Calls and Manage Risk Properly
In FX trading, a “Margin Call” is a critical aspect of risk management. If your margin maintenance ratio drops below the requirement, you’ll need to deposit additional funds — otherwise, your positions may be automatically liquidated.
However, by understanding the risks in advance and practicing leverage control, stop-loss placement, and regular margin checks, you can greatly reduce the likelihood of a Margin Call.
To protect your capital, make sure you understand how Margin Calls work and engage in FX trading with a solid plan.