What is margin call?
A margin call is the term used to describe the alert sent to a trader to notify them that the capital in their account has fallen below the minimum amount needed to keep a position open. A margin call can mean that the trader has to put up additional funds to balance the account, or close positions to reduce the maintenance margin required.
Margin call can also be used to describe the status of your account – ie you are ‘on margin call’ because the funds in your account are below the margin requirement.
When you trade with leveraged products – such as spread bets and CFDs – there are two types of margin: a deposit margin, needed to open the position, and a maintenance margin, needed to keep the position open. It is the failure to uphold the latter that will trigger a margin call.
If a trade starts to lose money, the funds in your account may no longer be enough to keep the position open and your provider will ask you to top up your account in order to bring your balance up to the minimum margin – this notification is a margin call. If you top up your funds, the position will remain open. If not, your provider may close the position and any losses incurred will be realised.
The term margin call came from the practice of brokers calling their clients to notify them of the account deficit. But these days, most margin calls are delivered by email.