Been trading for a few months now and keep seeing this term thrown around. Never experienced one myself but figure I should probably know what happens when you get hit with one.
What exactly triggers it and how bad does it get?
A margin call happens when you don’t have enough money in your account to cover your open trades. Your broker will either demand more cash or start closing your positions. Not a fun place to be.
A margin call occurs when your account equity falls below the required level to maintain your open trades. This typically happens at 100% margin, meaning your equity matches your used margin. Your broker will issue a warning first. If you don’t deposit more funds, they will close your losing trades, starting with the largest losses, until you meet the minimum requirement. To prevent this situation, limit your risk to a maximum of 2% per trade and keep your position sizes small.
Broker closes trades if your balance is too low.