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Module 1 – Lesson 11 – Leverage & Margin closeout

and facing a loss is the right thing to do, but if your vision is different – you can avoid a margin call by adding
more funds to your trading account.

Unfortunately, many brokers can issue the margin call without informing you about their intentions. Thus,
they automatically close the respective trade(s).

9. why does a margin call matter?
What is specific about margin accounts is that they enable traders to make investments with their broker's
money. In other words, margin accounts use leverage and can consequently magnify gains. However, losses
are magnified as well. Therefore, if you do not meet a margin requirement, your broker has the full right to
close your open trades, starting from the one with the highest loss, to increase your account equity until you
are above the necessary level of the maintenance margin.

A broker does not even need to consult you before closing the positions. Usually, the right of closing your
trades without waiting for you to meet the margin call is stated in a service agreement.

As a result, you are highly recommended to read your broker's service agreement very attentively before
investing your money. In this agreement you will see all of the terms and conditions of the margin account.
Such information often entails how interest is calculated, how the assets you buy serve as collateral for the
leverage provided and more.

Therefore, it is imperative to consider the margin call before trading on margin account.

10. how to calculate the margin call
Well, the margin call is the difference between your current equity balance in the trading account and how
much equity you require to maintain your open positions.

Even though you can make the calculation process by yourself, you can significantly economize time by
making good use of the margin call calculator. It determines the hypothetical rate at which a possible margin
call may occur.

Let's explain how to use the typical margin call calculator:
▪ Select your account type, as different accounts come with different sets of instruments and other
parameters;
▪ Define the leverage of your account, this depends on your account settings and your current balance;
▪ Pick your account currency;
▪ Choose the currency pair of a particular trade;
▪ Enter the volume of your trade(s);
▪ Define the action, i.e. the type of trade, buy or sell;
▪ Type in the opening and closing prices;
▪ Press Calculate.

You will be shown the necessary margin in order to keep your position open. Once your margin drops below
this level, the position will be closed. As the figures strongly depend on the settings of your account and the
data from a trade, we always recommend using a Trader's Calculator before you open an order.

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