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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

What is leverage in trading?

What is a margin call and how do you avoid it?

Margin calls occur when your account's equity drops below the required maintenance margin. Learn why understanding them is crucial for managing risk in leveraged trading.

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Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.

Visit help and support for more information.

Call 0800 409 6789 or email helpdesk.uk@ig.com if you have any questions about trading or investing. We're available 24/7 between 8am Saturday and 10pm Friday.

Contact us 0800 409 6789

Call 0800 195 3100 or email newaccounts.uk@ig.com to talk about opening an account.

Contact us 08001953100

Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.

Visit help and support for more information.

Get info fast via our instant help and support portal. Available for account queries, ProRealTime, product info and more.

Visit help and support for more information.

Call 0800 409 6789 or email helpdesk.uk@ig.com if you have any questions about trading or investing. We're available 24/7 between 8am Saturday and 10pm Friday.

Contact us 0800 409 6789

Written by: Anzél Killian | Lead Financial Writer, Johannesburg
Fact checked by: Axel Rudolph FSTA | Senior Technical Analyst, London
Publication date:

What is a margin call?

A margin call is a request from your broker – ie us – to deposit extra funds into your account when the value of your positions falls below a certain threshold. This happens when the equity in your margin account drops below the maintenance margin requirement set by us.

Margin calls serve as a risk management tool, ensuring that you maintain enough funds to cover potential losses. When a margin call is issued, you should act quickly to either add funds or reduce your positions to meet the minimum margin requirements.

Margin call example

Let's say the margin call level is set at 100%. This means that your you’ll get a warning notification if your margin level reaches 100%. A margin call Level at 100% is when your equity is equal to or lower than your used margin. This happens because you have open positions where floating losses continue to increase.

Aside from getting a notification, your trading will also be affected. If your account's margin level reaches 100%, you won’t be able to open any new positions – you can only close existing positions.

Let's say you have a £2,500 account and you open a EUR/GBP position with 1 mini lot (10,000 units) that has a £600 required margin. Since you only have one position open, used margin will also be £600 (same as required margin).

Imagine the market turns against you and your trade quickly starts losing. You're now down 235 pips. At approximately £0.85/pip for a mini lot of EUR/GBP, this means you have a floating loss of £200.

This means your equity is now £2,300 (£2,500 initial balance - £200 floating loss).

Your margin level is now: (£2,300 / £600) x 100% = 383.33%.

Calculations for equity and margin level. Equity – balance + floating P and L, while margin level = equity divided by used margin times 100%.

Remember, once the margin level reaches 100%, you won’t be able to open any new positions – unless:

  1. The market reverses back in your favour

  2. Your equity becomes more than your used margin

If the first doesn't happen, the second is only possible if you deposit more funds into your account or close out existing positions.

But what happens if your trade continues to go against you? Once your margin level falls further to another specific level (called the stop-out level), we’ll close your position.

When does a margin call happen?

A margin call can happen at any time when your account's equity falls below the maintenance margin requirement. This can be caused by several factors:

  1. Significant market movements against your open positions: sudden price swings can quickly erode your account equity, especially if you're heavily leveraged

  2. Insufficient funds to cover losses: if you don't have enough free margin in your account to sustain ongoing losses, it could trigger a margin call

  3. Increase in margin requirements: sometimes, we may change margin requirements due to increased market volatility or regulatory changes

  4. Withdrawal of funds that reduces your account equity: taking money out of your account can lower your equity and potentially trigger a margin call if you have open positions

It's crucial to understand the concept of maintenance margin, which is the minimum amount of equity you must maintain in your margin account.

You should always be aware of your account's margin level and the proximity to potential margin calls. Our trading platform offers real-time margin monitoring to help you stay informed about your account status.

How to satisfy a margin call

When faced with a margin call, you have a few choices.

  1. Deposit cash: add money to your account. This is often the quickest and most straightforward way to meet the margin call. It immediately increases your account equity without affecting your existing positions

  2. Deposit marginable securities: transfer eligible securities into your account. This option allows you to meet the margin call without adding cash, but note that not all ensure the securities you're transferring are accepted as margin collateral

  3. Deposit cash and marginable securities: add a combination of cash and securities. This approach offers flexibility in how you meet the margin requirements

  4. Sell securities: sell some of your current holdings. This reduces your margin requirement by decreasing your overall position size. However, be aware that this may result in realising losses if you're selling positions at a loss

It's important to act quickly when you receive a margin call. Failure to satisfy the margin call within the given period may result us closing your positions, which could lead to substantial losses.

Icons representing the ways to satisfy margin call.

How to avoid a margin call

To minimise the risk of receiving a margin call, consider these strategies:

  1. Create a cash cushion: maintain extra funds in your account beyond the minimum margin requirement. This provides a buffer against market fluctuations and reduces the likelihood of triggering a margin call. A good rule of thumb is to keep your account equity at least 30% above the maintenance margin requirement

  2. Build a well-diversified portfolio: spread your risk across different asset classes and sectors. Diversification can help mitigate the impact of adverse price movements in any single security or market sector, lowering the chances of a significant drop in your account equity

  3. Track your account closely: regularly monitor your positions, account balance and margin levels. We offer alerts to help you keep track of your account status. Set up notifications for when your margin level approaches critical thresholds

  4. Use stop-loss orders: implement stop-loss orders to automatically close positions if they move against you, limiting potential losses. While stop-loss orders don't guarantee execution at the exact price you set, they can help manage risk in volatile markets and prevent small losses from turning into larger ones that could trigger a margin call

Icons representing the ways to avoid margin call.

Senior technical analyst Axel Rudolph gives his view on how to avoid a margin call

One effective way to avoid margin calls is to ensure you have enough capital in your account. This involves careful risk management and position sizing. Let's explore how you can manage their risk effectively to maintain adequate capital and avoid potential margin calls.

You should ideally limit their risk to 1-3% of your total trading capital per position. Exceeding this threshold significantly increases the risk of depleting one's trading capital over time. For instance, if a position is leveraged to the point where the potential loss could be 50% of total trading capital, just two consecutive losses could wipe out your entire account.

Even if only one highly leveraged trade results in a loss, you’d need to achieve a 100% profit just to recover their initial position. This scenario underscores the importance of prudent risk management in spread betting (and other leveraged trading activities).

Many traders underestimate the likelihood of consecutive losing trades, especially as the number of executed trades increases. It's similar to a roulette player in a casino being more likely to eventually deplete their funds the longer they continue playing. For example, if you use a normal probability distribution: with a 50% win rate over 100 trades, there's a 100% chance of experiencing five consecutive losing trades, a 10% chance of nine consecutive losses, and a 1% chance of twelve consecutive losses.

The impact of position sizing on trading capital


If you had a 50% win rate, risking 10% of your total trading capital per trade you’d (at best) lose 50% of your capital over 100 trades (five consecutive 10% losses). At worst, you could face the risk of ruin, potentially losing all your trading capital (more than ten consecutive 10% losses).

Conversely, when risking only 1% per trade, a ten-trade losing streak would result in a total 10% loss. At 3% risk per trade, the same streak would lead to a 30% loss of total trading capital. While disappointing, such losses would still leave 70-90% of the trading capital available for potential recovery.

This situation contrasts sharply with risking 10% per trade, where ten consecutive losses would completely deplete your trading account. It's crucial to remember that recovering from significant losses becomes increasingly difficult, as larger percentage gains are required to offset percentage losses.

You can limit their potential loss to 1-3% of their total trading capital through various methods. These include reducing leverage per trade, implementing stop-loss orders on positions, or employing hedging strategies.

FAQs

What happens if you can't meet a margin call?

If you can't meet a margin call, we may close some or all of your positions to bring your account back to the required margin level. This process, often called a ‘stop out’, can result in significant losses.

How do you survive a margin call?

To survive a margin call, quickly deposit funds, close losing positions, or add marginable securities to your account. Acting quickly can help you navigate this challenging situation.

Do you lose all your money on margin call?

No, you don't necessarily lose all your money on a margin call, but you may lose a significant portion if you can't meet the call. The exact amount depends on market conditions and how quickly you respond to the margin call.

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