What Happens When You Get a Margin Call in Forex?
A margin call in forex happens when your account equity falls below the level your broker requires to keep your open positions running. When this happens, your broker will notify you that your account no longer meets the minimum margin requirement, and you will need to either deposit more funds or have some of your positions closed.
Understanding exactly what happens during a margin call, and why it happens, is one of the most important aspects of managing risk in leveraged forex trading.
What Is Margin in Forex Trading?
Before explaining what a margin call is, it helps to understand what margin means in a forex context.
When you open a leveraged position, your broker sets aside a portion of your account balance as collateral. This collateral is called margin. It is not a fee or a cost. It is a deposit held by the broker to cover potential losses on your open trade.
The amount of margin required depends on the size of your position and the leverage ratio applied to it. A $10,000 position at 1:100 leverage requires $100 in margin. A $10,000 position at 1:10 leverage requires $1,000 in margin.
Your free margin is the portion of your account equity that is not currently held as margin. It is the capital available to open new trades or absorb losses on existing ones.
What Triggers a Margin Call?
A margin call is triggered when your account equity drops to a specific threshold, known as the margin call level. This is typically expressed as a percentage of the required margin.
For example, if a broker sets a margin call level of 100%, a margin call is triggered when your equity equals your used margin. At that point, your free margin has reached zero.
The calculation that matters is:
Margin level = (Equity / Used Margin) x 100
When this percentage falls to the broker’s margin call threshold, the broker issues a warning. If it continues to fall to the stop out level, positions begin to be closed automatically.
It is important to understand that margin calls are caused by losses on open positions reducing your equity, not by the passage of time or any fixed schedule.
What Happens After a Margin Call?
The sequence of events after a margin call depends on your broker’s specific policy, but the general process works as follows.
When your margin level hits the margin call threshold, you receive a notification. This is typically an alert within the trading platform, an email, or both. At this stage your positions are still open, but you are being warned that your account is at risk.
You then have two options. You can deposit additional funds to bring your equity back above the required margin level, or you can close some of your open positions yourself to reduce the margin being used.
If you do neither and your margin level continues to fall to the stop out level, your broker will begin closing your positions automatically. This process, called a stop out, usually begins with the largest losing position first. Positions are closed one by one until your margin level rises back above the stop out threshold.
What Is the Difference Between a Margin Call and a Stop Out?
These two terms are related but describe different events.
A margin call is the warning. It tells you that your equity has fallen to a level where the broker is concerned about your ability to cover your losses.
A stop out is the action. It is the automatic closure of positions that happens if your margin level continues to fall beyond the stop out level.
Most brokers set the margin call level higher than the stop out level. For example, a broker might issue a margin call at 100% margin level and begin automatic closures at 30%. This gives the trader a window between the warning and the automatic closure to take action.
Can You Lose More Than Your Deposit?
In normal market conditions, the stop out mechanism is designed to close your positions before your balance reaches zero. However, in fast-moving markets, prices can move so quickly that positions are closed at a worse price than intended, potentially resulting in a negative balance.
This is sometimes called slippage during a stop out. In volatile conditions, such as during major economic announcements or unexpected geopolitical events, prices can gap significantly, meaning your positions may be closed at a price much worse than the stop out level.
Some brokers offer negative balance protection, which means they will absorb any losses beyond your deposit and reset your account to zero rather than leaving you with a debt. It is worth checking whether your broker offers this protection before opening an account. For more on how brokers are structured and what protections they offer, see the Forex Broker Regulation Explained page.
How to Avoid a Margin Call
The most effective ways to avoid a margin call are directly related to how you manage position sizes and account equity.
Keeping effective leverage low is the most reliable approach. A trader using a small fraction of their available leverage has much more room for the market to move against them before their margin level is threatened.
Monitoring open positions regularly is also important. A margin call can develop gradually as a position moves against you over hours or days, or it can happen very quickly during a period of high volatility. Traders who are not actively watching their accounts can find themselves stopped out before they have a chance to respond.
Using stop losses on every trade is another layer of protection. A stop loss closes your position at a predefined price, limiting the loss before it reaches the point where your margin level is threatened. For more on how stop losses work, see How Does a Trailing Stop Loss Work in Forex.
Finally, keeping a portion of your account as free margin rather than using all available capital on open trades gives you a buffer against adverse moves.
Frequently Asked Questions
What is a margin call in forex? A margin call is a notification from your broker that your account equity has fallen below the required margin level to maintain your open positions. It is a warning that you need to deposit more funds or reduce your exposure, or your positions may be closed automatically.
Does a margin call mean I have lost all my money? Not necessarily. A margin call is a warning, not a final outcome. At the point of a margin call your positions are still open and you still have equity in your account. You can deposit more funds or close positions yourself before automatic stop outs occur.
What happens if I ignore a margin call? If you ignore a margin call and your margin level continues to fall to your broker’s stop out level, the broker will begin closing your open positions automatically, starting with the largest losing trade. This continues until your margin level rises back above the stop out threshold.
How is the margin call level calculated? Margin level is calculated as your account equity divided by your used margin, multiplied by 100 to express it as a percentage. Each broker sets its own threshold for when a margin call is triggered, commonly at 100% margin level.
Can I get a margin call on a demo account? Yes. Most demo accounts simulate margin calls and stop outs the same way live accounts do, which makes them useful for understanding how these mechanics work without risking real capital.
What is the difference between a margin call level and a stop out level? The margin call level is the threshold at which you receive a warning. The stop out level is the lower threshold at which your broker begins automatically closing positions. Most brokers set the stop out level below the margin call level, giving you time to act between the warning and the automatic closures.
Is negative balance protection the same as avoiding a margin call? No. Negative balance protection is a safeguard that prevents your account balance from going below zero after a stop out. It does not prevent a margin call or a stop out from happening. It simply limits the maximum loss to your deposited funds rather than leaving you with a debt to the broker.