# What Is a Margin Call and How to Avoid It

> A margin call is one of the most feared events in retail forex. Here is exactly what it is, why it happens, and how to make sure it never happens to you.

**Tags:** margin-call, margin, risk-management, forex-basics
**URL:** https://traderjournal.app/forex-basics/what-is-a-margin-call-how-to-avoid-it

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# What Is a Margin Call and How to Avoid It

A margin call occurs when your account equity falls to a level where the broker cannot continue to hold your positions. The broker either alerts you to deposit more funds or automatically closes your positions to prevent your account from going negative.

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## How a Margin Call Happens

When you open a leveraged position, your broker requires a portion of your account as margin - collateral against potential losses.

As your positions lose money, your equity (balance + floating P&L) decreases. If it decreases enough, your margin level percentage falls to the broker's margin call threshold.

Example:
- Account balance: $2,000
- Open position requiring $500 margin
- Floating loss on position: -$1,400
- Current equity: $2,000 - $1,400 = $600
- Margin level: ($600 / $500) x 100% = 120%

If the broker's margin call level is 100%, you are close. If the floating loss increases another $100, equity becomes $500, margin level = 100%, and a margin call triggers.

At the stop-out level (typically 50%), positions are automatically closed.

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## Why Margin Calls Happen

Margin calls are almost always the result of one or more of these behaviors:

**No stop losses.** Without a stop loss, there is no limit on how far a position can move against you.

**Stop losses moved in the losing direction.** Instead of accepting the original planned loss, the stop is moved further away, allowing losses to grow.

**Oversized positions.** Trading positions too large for the account size means even a small adverse move creates a large percentage loss.

**Multiple correlated positions.** Holding 5 long positions on EUR pairs simultaneously means a dollar rally hits all five positions at once, multiplying the loss.

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## How to Avoid Margin Calls

**Always trade with a stop loss.** No exceptions. The stop loss caps your maximum loss on any position.

**Calculate lot size from a risk rule.** If your lot size is calculated to risk only 1-2% of account per trade, it is nearly impossible to reach a margin call from a single trade.

**Monitor your margin level.** In MT4/MT5, the margin level is displayed in the Trade tab. Keep it above 200% as a conservative rule. Below 200% means you are running meaningful margin risk.

**Do not hold too many concurrent positions.** Each new position adds to your used margin and reduces your free margin buffer.

**Set a daily loss limit and enforce it.** Stopping trading when you have lost a defined amount prevents the sequence of events that typically leads to margin calls.

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