An Introduction To A Forex Margin Call

25 October 2011
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Forex margin call is when the equity falls below the required level in a clients account. Leverage financed by credit is a description of what is required in the account. This call is actually very common within the world of Forex trading. An account with a set limit means that the account has leverage and this means that forex currencies can be purchased for a combination of both collateral and cash. There is a lot of different brokers and they all accept different amounts.

It is true to say that investing in this is not really the same as gambling however it is fair to say that there is some similarities between a casino and forex trading. Trading requires a high level of risk however it can yield very large profits if it is handled in the correct manner.

The darker side of margin trading can mean that you stand to lose a vast amount of money and assets if things do not work in your favour. It is very important to fully understand margin trading before taking the risk as this will help to reduce the risk factors, as you will be able to make informed decisions.

As with all other types of investment research is very important as it can mean the difference between a fantastic profit and a painful loss. An example of a this is where a client has ten positions open and the equity in their account falls below five thousand. When this happens some of the clients open positions will then close at the current price.

The trader will be able to monitor both the useable margin and the used level in the account information on the trading platform. Once the useable amount has been used the positions will automatically close once the useable amount falls below zero. It is possible for traders to avoid this by using either stop loss orders or by maintaining adequate funds within the account.

The broker will usually have a minimum size of account and this is known as the account margin. Once this level has been met there will be no trading until more money is placed in the account. If the broker feels that there is a danger that he will contact the client and ask them to deposit more money or ask that they close positions in order to limit the level of risk.

It is possible to use an automatic stop loss as a safety net and this will force the position to automatically close when the loss reaches a certain level. This safety net will be enforced when the margin account balance falls below the value of the assets as this will mean that there is a short fall within the forex account. This is actually very common practice within forex trading.

There are some differences between weekday trading and weekend trading. It is possible to get a reduced level of leverage for the weekend. This policy is in place to protect clients from the risks that are caused by swings in the prices.

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Getting the dreaded margin call from your broker is not something any of us look forward to. For more on how to avoid it and other topics like what are derivatives please stop by the website today.

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