What Is Margin Call and How to Avoid It?

Losing an entire deposit—especially the first one—is a common scenario for beginner traders. However, even experienced traders can face the same fate if they fail to follow proper risk management (money management). Margin Call is one of the most dangerous situations in trading, leading to the forced closure of positions and significant capital loss.

In this article, we will explain how Margin Call works, its causes, consequences, and most importantly, how to prevent it.

---

What Is Margin Call?

A Margin Call occurs when the balance in a trader’s account becomes too low to maintain open positions, based on the broker’s margin requirements. When the margin level falls below a critical threshold, the trader receives a notification to add more funds. If the account balance is not replenished, the broker automatically liquidates positions—this process is called a Stop Out.

Each broker sets their own Margin Call and Stop Out levels, but on average:

📌 Margin Call happens when the margin level drops to 100-50% (depending on the broker).
📌 Stop Out occurs when the margin level falls below 20-30%, triggering automatic liquidation of the most unprofitable positions.

Trading with high leverage and poor capital management almost guarantees a Margin Call when the market moves unfavorably.

---

Why Does Margin Call Happen? Key Causes

❌ 1. Excessive Use of Leverage
Leverage allows traders to control large positions with small deposits, but it dramatically increases risk. The higher the leverage, the smaller the price movement needed to wipe out the entire balance.

❌ 2. Insufficient Capital
Many traders start with minimal deposits, making them extremely vulnerable to even minor market fluctuations.

❌ 3. Poor Position Sizing
The larger the trade size (lot size), the faster losses accumulate when the market moves against you. Opening oversized positions can lead to rapid depletion of the deposit.

❌ 4. Trading Without Stop Loss
Failing to set a stop-loss order leaves traders exposed to unlimited losses. Many hold losing positions, hoping for a market reversal, only to see their account liquidated.

❌ 5. High Volatility and Market Gaps
Sudden price spikes or news-driven moves can lead to instant Margin Calls, especially if trading occurs during high volatility periods.

❌ 6. Risky Strategies (Martingale, Pyramiding)
Strategies that involve doubling down on losing trades or adding to unprofitable positions often result in complete account liquidation.

---

Consequences of Margin Call

📌 Forced Closure of Positions – The trader loses control over their trades, as the broker liquidates positions at market prices.

📌 Account Wipeout – With high leverage, even a small price movement against the trader can completely drain the account.

📌 Psychological Shock – Margin Calls destroy a trader’s confidence, leading to emotional trading and revenge trading, which causes even greater losses.

📌 Loss of Trading Opportunities – If a trader loses most of their capital, they can no longer open new trades and miss future profitable opportunities.

---

How to Avoid Margin Call? Best Practices

✅ 1. Use Reasonable Leverage
An optimal leverage level is 1:5 or 1:10. The higher the leverage, the greater the risk of liquidation.

✅ 2. Implement Strict Risk Management
Determine how much you are willing to risk per trade. A 1-2% risk per trade is considered a safe benchmark.

✅ 3. Always Set Stop Loss Orders
Every trade should have a calculated stop-loss to prevent uncontrolled losses.

✅ 4. Consider Asset Volatility and Pip Value
Different markets have different pip values. For example, on gold and oil, one pip is more expensive than on forex pairs, meaning losses accumulate faster.

✅ 5. Do Not Use All Available Margin
Maintain a "safety buffer" in your account to absorb temporary drawdowns without triggering a Margin Call.

✅ 6. Monitor the Economic Calendar
Before major economic reports and news releases, reduce your position size or exit the market to avoid unexpected volatility.

✅ 7. Do Not Add to Losing Positions
If a trade is going against you, do not increase your position size without a clear strategy. Adding to losers only accelerates a Margin Call.

✅ 8. Check Your Broker’s Conditions
Different brokers have different Margin Call and Stop Out levels. Always understand these conditions before trading.

---

Conclusion: Discipline and Risk Management Are Key to Survival

📌 Margin Calls are NOT accidents—they are a result of poor capital management.
📌 Leverage is a powerful tool, but if misused, it will wipe out your account.
📌 Risk management should be the foundation of every trading strategy.

 

The most important goal is not to make money quickly, but to avoid losing everything in the early stages. Only discipline and risk control will help you survive and become consistently profitable in trading. 🚀