At cfi you trade with what is called a margin account. margin is the term used when we refer to the money required to open and maintain a leveraged position in a trading account. we use the term margin call to describe the notification sent to a trader to inform them that the margin/funds in their account have dropped past the minimum amount required (usually because of a losing trade) to keep a trading position open. when this happens, the trader has two options, fund the account some more or close the position to reduce the maintenance margin required.
Leverage is used on margined accounts which means the amount of money you have in your account allows you to buy or sell positions that are bigger in value than the actual funds available in your balance. for example, $1,000 allows you to open a position of $100,000 which is effectively, 100 times the amount you have deposited.
Sometimes ‘on margin call’ can also be used as a phrase, meaning your trading funds are below the minimum margin requirement to maintain the open position. if you deposit some more money into your account it will stay open, if you do not however the position will be closed and any losses you have incurred will be fulfilled.
Example of a margin call
You will receive a margin call if the capital in your trading account falls below 100% of your maintenance margin – usually you will be notified of this via email. we start to close positions if your margin falls below 50% of the required capital.
key takeaways
- When a margin call occurs, the trader needs to decide if he/she will either deposit more money or close the position.
- You will receive a margin call if the capital in your trading account falls below 100% of your maintenance margin and you will need to bring it up to the minimum maintenance margin.
- Trading on margin accounts carries a high level of risk.
Learn more about margin calls
Discover cfi's margin requirements and margin call procedure.