Financial Analyst/ Guest author, RADEX MARKETS
Lee W. is a seasoned professional trader with over 10 years of experience. Passionate about sharing valuable expertise and unique market insights, Lee W. now serves as an external and independent market analyst for RADEX MARKETS.
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The dreaded “margin call, your screen turns red and a feeling of impending doom is about too decent on you, and your account is about to blow up in front of your eyes!
In forex trading, a margin call is one of those things every trader hopes they’ll never experience, but many eventually do. The term “margin call” refers to a situation where your broker demands action because your account no longer has enough equity to support your open positions. This matters because margin calls are not random events; they are the direct result of risk building quietly in the background.
In simple terms, a margin call happens when losses reduce your account balance to a level that breaches your broker’s margin requirements. At that point, your broker steps in to protect themselves from further risk, often before you fully realise how exposed your account has become. This is why understanding margin calls is not optional, it is a core part of effective risk management.
For this reason, every forex trader should clearly understand what a margin call is, what triggers it, and how it can be avoided. The sections below explain what a margin call is, why it happens, and practical steps traders can take to avoid margin calls before they threaten their trading account.
A margin call in trading occurs when a trader’s account equity falls below the minimum level required to maintain open positions. In forex trading, the term “margin call” refers to a broker’s warning that your available funds are no longer sufficient to support the risk you have taken. This matters because once a margin call is triggered, your control over the account starts to shrink rapidly.
In simple terms, a margin call happens when market losses reduce your equity to a point where the broker considers the account unsafe. Margin exists as a risk management tool, allowing traders to control larger positions with borrowed funds while protecting brokers from excessive losses. When that protection level is breached, the broker intervenes.
When a margin call occurs, traders typically have limited options. They may need to add funds, close positions, or reduce exposure to restore the required margin level. As a result, understanding how margin calls work is essential, because reacting late, or not at all, can lead to forced position closures and avoidable losses.
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In forex trading, a margin call is triggered when a trader uses both their own capital and borrowed funds from a broker to open positions, and those positions move against them. This process is known as margin trading, and while it allows traders to control larger positions, it also increases risk. This matters because even relatively small price movements can have an outsized impact on account equity.
A margin call occurs when losses reduce the account’s equity to a level that no longer meets the broker’s margin requirements. At this point, the broker issues a warning to prevent further losses and protect the funds they have effectively lent to the trader. In practice, margin calls are not caused by a single mistake, but by a combination of exposure, leverage, and adverse price movement.
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The most common triggers for a margin call include:
For this reason, understanding each of these triggers individually is critical, as margin calls usually build up gradually rather than appearing out of nowhere.
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A margin call is triggered when a trader’s equity falls below the margin level required by the broker. In forex trading, margin level is a key risk indicator that shows how much usable capital remains relative to the margin already tied up in open positions. This matters because the margin level determines whether your broker considers your account stable or at risk.
The margin level is calculated using the following formula:
Margin Level = Equity ÷ Used Margin
In simple terms, equity reflects your account balance plus or minus unrealised profit or loss, while used margin is the amount currently locked into open trades. When losses increase, equity falls, but used margin stays the same, causing the margin level to drop.
Example:If your equity is $1,000 and your used margin is $500; your margin level is 200%. If losses reduce equity to $500 while used margin remains $500, the margin level falls to 100%, which may trigger a margin call depending on the broker’s threshold. As a result, falling margin levels are often the first clear warning sign that a margin call is approaching.
Large unrealised losses occur when open trades move significantly against a trader but have not yet been closed. In forex trading, these floating losses directly reduce account equity even though no loss has been “locked in” yet. This matters because margin calls are based on equity, not just your account balance.
In simple terms, the market does not care whether a loss is realised or unrealised, your broker treats both the same when assessing risk. As unrealised losses grow, equity falls while used margin remains unchanged, causing the margin level to deteriorate rapidly. This is why traders can face margin calls even when they believe they are “just waiting for price to come back.”
Large unrealised losses are especially dangerous when traders refuse to cut losing positions or widen stop losses out of hope. As a result, floating losses are one of the most common and underestimated causes of margin calls in forex trading.
High leverage allows forex traders to control large positions with a relatively small amount of capital. In forex trading, leverage magnifies both profits and losses, which means even small market moves can have a dramatic impact on account equity. This matters because high leverage significantly increases the likelihood of a margin call.
In simple terms, the higher the leverage, the less room your trade has to move against you before losses start eating into your margin. While leverage can boost returns in favourable conditions, it also accelerates drawdowns when the market moves the wrong way. As a result, traders using excessive leverage often reach margin call levels far faster than they expect.
High leverage becomes especially dangerous when combined with poor risk management or multiple open positions. For this reason, understanding how leverage works, and using it conservatively, is one of the most effective ways to reduce the risk of a margin call.
Read more: What is leverage and how it works in forex trading?
Low free margin refers to the amount of capital left in a trading account that is not tied up in open positions. In forex trading, free margin is what allows traders to open new trades or absorb temporary losses without triggering a margin call. This matters because once free margin approaches zero, the account has no buffer left.
Free margin is calculated using the following formula:
Free Margin = Equity − Used Margin
In simple terms, equity fluctuates with market movements, while used margin stays fixed as long as positions remain open. When losses increase, equity falls and free margin shrinks, even if the trader does nothing. As a result, low free margin leaves traders extremely vulnerable to sudden price swings, spreads widening, or volatility spikes that can quickly trigger a margin call.
A margin call is effectively determined by how much free margin and equity remain in a trading account relative to the broker’s required margin level. In forex trading, understanding this calculation helps traders recognise risk early rather than reacting after a warning appears. This matters because margin calls are mathematical outcomes, not subjective decisions.
As a reminder, free margin is calculated as:
Free Margin = Equity − Used Margin
When equity declines due to unrealised losses and approaches the level of used margin, free margin shrinks toward zero. At that point, the margin level falls toward the broker’s margin call threshold, increasing the risk of forced action.
In practice, traders can estimate how close they are to a margin call by monitoring equity in real time and comparing it to used margin. As a result, regularly checking these figures allows traders to manage risk proactively rather than being surprised by a margin call notification.
To put it simply, a margin call occurs when losses reduce a trader’s equity to a level that can no longer support open positions. A practical example helps show how quickly this can happen in real trading conditions. This matters because many traders underestimate how fast margin levels can fall.
Example scenario:A trader deposits $1,000 into a forex account and opens positions requiring $500 in used margin. This gives the account a margin level of 200%. If the market moves against the trader and unrealised losses reach $400, equity drops to $600 while used margin remains $500. The margin level now falls to 120%.
If losses increase further and equity drops to $500, the margin level falls to 100%, which may trigger a margin call depending on the broker’s rules. As a result, even a modest-looking loss can quickly escalate into a margin call if position size and leverage are too high.
A margin call happens when an account’s margin level falls below the threshold set by the trading platform. In forex trading, this threshold is defined by the broker and can vary depending on the account type, instrument traded, or regulatory requirements. This matters because traders often assume margin calls happen at the same level everywhere, which is not the case.
In simple terms, once your margin level drops into the broker’s danger zone, a margin call notification may be issued. However, the timing of this alert is not always perfectly synchronized with the exact moment the threshold is breached. Notifications can be delayed slightly due to system processing, fast-moving markets, high volatility, or temporary liquidity shortages.
For this reason, traders should never rely on margin call alerts as a risk-management tool. Monitoring margin levels proactively is far safer than reacting after a warning appears.
Margin Level Risk Ranges
Margin Level |
Risk Description |
|---|---|
| Above 200% | Healthy account condition with ample buffer to absorb losses |
| 100%–200% | Elevated risk zone: losses are reducing available flexibility |
| At or below the broker’s margin call threshold | Margin call warning may be issued |
| At or below the broker’s stop-out threshold | Positions may be forcibly closed to prevent further losses |
As a result, understanding these ranges helps traders recognise risk early and act before control of the account shifts to the broker.
When a margin call occurs, it signals that a trading account is approaching a critical risk level. In forex trading, failing to respond quickly can result in the broker taking control of the situation. This matters because once margin levels fall too far, traders may lose the ability to decide how and when positions are closed.
If a margin call is ignored or not addressed in time, several consequences may follow:
To avoid these outcomes, traders must act decisively when a margin call is triggered. The most common responses include adding funds, reducing exposure, freeing up margin, or adjusting leverage and position size, each of which impacts the account differently. For this reason, understanding these options in advance is critical rather than reacting under pressure.
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Adding funds means depositing additional capital into a trading account to increase equity and restore the required margin level. In forex trading, this is often the fastest way to respond to a margin call because it immediately improves free margin and margin level. This matters because time is usually limited once a margin call is triggered.
In simple terms, adding funds gives the account more breathing room without changing any open positions. However, this approach does not fix the underlying problem if the trades themselves are poorly managed or overleveraged. As a result, adding funds can sometimes delay losses rather than prevent them.
Traders should also consider the risks before choosing this option:
For this reason, adding funds should be a calculated decision, not an automatic reaction to a margin call.
Reducing exposure means closing part or all of one or more open positions to lower overall risk. In forex trading, this immediately decreases used margin and can stabilise an account that is close to a margin call. This matters because reducing exposure tackles the root cause of the problem rather than simply adding more capital.
In simple terms, fewer open positions mean less borrowed money is in use and smaller potential losses if the market continues to move against you. By selectively closing trades, often the weakest or most overleveraged ones, traders can quickly improve margin levels. As a result, reducing exposure is often a more disciplined response than adding funds.
However, traders should be aware of the trade-offs:
For this reason, reducing exposure works best when decisions are made based on risk, not emotion.
Freeing up margin involves releasing margin that is already tied to open positions, usually by closing or partially closing trades. In forex trading, this reduces used margin and improves free margin without necessarily adding new funds. This matters because it gives the account more flexibility to withstand further market movement.
In simple terms, freeing up margin lowers the amount of capital locked into trades, which raises the margin level even if equity stays the same. Traders often achieve this by scaling out of positions or closing trades with high margin requirements. As a result, this approach can be an effective way to stabilise an account during volatile market conditions.
That said, traders should consider the risks:
For this reason, freeing up margin should be part of a broader risk management plan rather than a last-minute rescue attempt.
Adjusting leverage and position size means reducing how much market exposure each trade carries relative to account equity. In forex trading, this directly lowers margin requirements and slows the rate at which losses can trigger a margin call. This matters because leverage is one of the main accelerators of account drawdowns.
In simple terms, smaller position sizes require less borrowed capital, giving trades more room to breathe. Lower leverage reduces the sensitivity of the account to price fluctuations, especially during volatile periods. As a result, traders who scale position sizes appropriately are far less likely to face sudden margin calls.
However, traders should be mindful of the following:
For this reason, adjusting leverage and position size should be a proactive habit, not a reaction after damage has already been done.
Read more: What is leverage and how it works in forex trading?
To put it simply, avoiding a margin call comes down to managing risk before it becomes a problem. In forex trading, margin calls are not bad luck, they are the result of excessive exposure, poor planning, or ignoring account metrics. This matters because prevention is far easier (and cheaper) than reacting once a margin call appears.
Traders who successfully avoid margin calls typically follow a small set of disciplined habits. These strategies focus on maintaining sufficient equity, controlling leverage, and staying aware of open risk at all times. As a result, margin calls become rare events rather than recurring surprises.
Below are several practical methods traders can use to reduce the likelihood of a margin call.
Read more: 10 Forex risk management tips every trader should know
Creating a cash cushion means keeping a portion of your account balance unused and uncommitted to open trades. In forex trading, this buffer absorbs temporary drawdowns and protects margin levels during normal market fluctuations. This matters because accounts running at full capacity have no room for error.
In simple terms, a cash cushion gives trades space to develop without immediately threatening margin requirements. Traders who operate with excess free margin are far less vulnerable to sudden volatility spikes. For this reason, trading below maximum capacity is one of the most effective margin call prevention techniques.
Monitoring open positions involves regularly checking equity, margin level, and unrealised profit or loss while trades are active. In forex trading, conditions can change quickly, especially during news events or low-liquidity periods. This matters because margin risk increases even when traders are not placing new trades.
By tracking account metrics in real time, traders can reduce exposure early rather than waiting for broker warnings. As a result, monitoring positions helps traders stay proactive instead of reactive.
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A well-diversified portfolio spreads risk across multiple instruments rather than concentrating exposure in a single currency pair or direction. In forex trading, diversification helps smooth equity fluctuations when individual positions move against expectations. This matters because concentrated risk accelerates margin erosion.
In simple terms, diversification reduces the impact of any single losing trade on overall margin levels. For this reason, traders who avoid overloading correlated positions are less likely to face sudden margin calls.
Using stop-loss orders means defining a maximum acceptable loss before entering a trade. In forex trading, stop losses automatically close positions before losses grow large enough to threaten margin requirements. This matters because uncontrolled losses are one of the fastest paths to a margin call.
Stop losses protect equity, preserve free margin, and enforce discipline during volatile markets. As a result, traders who consistently use stop losses maintain far greater control over margin risk.
A margin call occurs when a trader’s equity in a margin account falls below the broker’s required minimum level. When this happens, the trader must add funds or close positions to restore the account balance and meet margin requirements.
This matters because margin calls are designed to protect both the trader and the broker from further losses.
Failing to act on a margin call can lead to serious financial consequences.
Consequences of ignoring a margin call include:
As a result, ignoring a margin call often leads to worse outcomes than acting early.
To meet a margin call, traders can deposit additional funds or close open positions to restore margin levels. To avoid margin calls entirely, traders should understand margin requirements, use stop-loss orders, control leverage, and maintain adequate free margin.
This matters because disciplined risk management the likelihood of margin calls occurring in the first place.
A margin call typically lasts two to five days, depending on the broker and market conditions. During highly volatile markets, traders may be required to act much faster.
If a trader fails to respond within the required time frame, the broker may liquidate positions without consent to cover the shortfall.
The golden rule of margin trading is to use leverage cautiously and always manage downside risk. Traders should never risk more capital than they can afford to lose, as leverage can rapidly amplify losses when markets move against them.
For this reason, disciplined risk control is essential when trading on margin.
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