what is a margin call before the very
term has explained let's make some
things clear in traditional trading you
exchange one asset for another for
example you sell a house to get British
pounds in return or buy American dollars
for euro in an exchange office in CFD
trading however you have two open
positions either long to buy or short to
sell when you open a position you
basically take on an obligation to close
it in a while
you close long positions by selling and
short positions by buying before you
close a position you accumulate
unrealized gains and losses their amount
changes as the assets price goes up or
down add unrealized gains and losses to
your account balance and you'll get the
equity to trade on margin you should
maintain a certain ratio of equity to
the required margin required margin is
the amount of collateral required to
support your resting orders to keep your
positions open so when a traders equity
drops below the required margin he or
she receives a margin call basically a
margin call is a risk management tool so
that you don't incur further losses at
capital com if your equity drops below
125 percent of the required margin
you'll receive the first message for now
you can still open new positions and
place orders you receive the second one
if your equity continues dropping and
goes below a hundred percent of the
margin required you are no longer able
to open new positions or place orders if
your equity to margin ratio drops
beneath 75 percent margin call number
three same as before
you cannot open new positions or place
orders and finally mind the equity equal
or less than 50 percent
that's our maintenance threshold if you
reach or go below this we automatically
close all your open positions and cancel
your pending orders margin calls are
must-haves in a broker investor
relationship because of market
volatility when markets move fast margin
requirements
serve as a safety mechanism there are
three ways to avoid margin calls one
fund your account to set a lower
leverage for new positions three close
some of your positions let's take a look
at an example this is Rick he is a
traitor Rick has three thousand five
hundred dollars in his account and wants
to buy CFDs on XYZ shares with a margin
of one to two one share is trading at
$99 / $100 and Rick wants to go long on
50 CFDs at $100 ask price to open a
position on five thousand dollars worth
of stock with a 50 percent margin
Rick puts in two thousand five hundred
dollars the rest of the money is
provided by his broker there are 1000
dollars of intact funds left in his
account so Rick goes long within a
course of time the price of XYZ chair
goes down to $92 bid price the total
value of his XYZ shares declines to
$4,600 and Rick's equity becomes one
thousand dollars plus two thousand one
hundred dollars he calls $3,100 his
current equity - margin ratio is $3,100
over two thousand five hundred dollars
times a hundred percent equals one
hundred and twenty four percent time for
the first margin call the equity is
below one hundred and twenty five
percent of the required margin however
the value of fifty CFDs continues
dropping down for $3,900 consequently
the equity falls to one thousand dollars
plus one thousand four hundred dollars
equals two thousand four hundred dollars
this is 96% of the required margin
$2,500 the second margin call
Rick's equity - margin level is now
below 100 percent the XYZ share price
goes down further now the value is three
thousand three hundred dollars and
equity is estimated at $1000 plus $800
equals one thousand eight hundred
dollars this makes 72 percent of the
required margin lower than our third
margin call value of 75 percent crossing
the two thousand seven hundred and fifty
value for 50 CFD
will mean that the equity drops below
50% of the required margin below the
$1,250 equity level this will be
positioned closed out here a margin call
is a good safety measure in case the
market you're trading in enters high
volatility territory to avoid margin
calls and rest assured you won't go
belly-up it's better to set stop losses
and keep in mind that sometimes markets
move very very fast