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Margin Call ( How to avoid it )


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Margin Call ( How to avoid it )

  #1 (permalink)
 mdsvtr 
Memphis,TN
 
Posts: 232 since Sep 2010

I have been trading Forex pairs here recently ( small amount of $ , still getting my feet wet )

My question comes down to Margin / Margin Calls , and how to avoid getting " Called Out " and having your position(s) automatically closed

For Example..... Say I have $200 in my account to trade with
I only want to risk $100 on the trade, and my Stop is 100 pips from my Entry
So, I buy ( trade ) 10 micro Lots of the EUR/USD , this having a $100 of my $200 account at risk

I'm using FXCM to trade Forex, and the Margin required per 1 Lot to trade the EUR/USD is $20
So to place this trade, I would have all of the money in my account tied up in the Required Margin
If I lose on the trade, and get stopped out at the Full $100 I had at risk, would I get a Margin Call or would I still have $100 left in my account to trade with, and could then, Buy 5 micro Lots on the EUR/USD ?

I'm just a bit confused as to how Margin / Margin Calls work on the Forex markets and want to make sure that if I open an account with $4000 , and have 5 different trades going on at the same time, while risking a max of $100 per trade, that if worst case scenario, I get fully stopped out on each of the 3 of the 5 trades trades, while I'm profitable on the other 2 trades, that I won't get a Margin call and have my 2 trades I'm profitable on, get closed out .

Thanks for the help everyone, Very much appreciate it

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  #3 (permalink)
 
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mdsvtr View Post
I have been trading Forex pairs here recently ( small amount of $ , still getting my feet wet )

My question comes down to Margin / Margin Calls , and how to avoid getting " Called Out " and having your position(s) automatically closed

For Example..... Say I have $200 in my account to trade with
I only want to risk $100 on the trade, and my Stop is 100 pips from my Entry
So, I buy ( trade ) 10 micro Lots of the EUR/USD , this having a $100 of my $200 account at risk

I'm using FXCM to trade Forex, and the Margin required per 1 Lot to trade the EUR/USD is $20
So to place this trade, I would have all of the money in my account tied up in the Required Margin
If I lose on the trade, and get stopped out at the Full $100 I had at risk, would I get a Margin Call or would I still have $100 left in my account to trade with, and could then, Buy 5 micro Lots on the EUR/USD ?

I'm just a bit confused as to how Margin / Margin Calls work on the Forex markets and want to make sure that if I open an account with $4000 , and have 5 different trades going on at the same time, while risking a max of $100 per trade, that if worst case scenario, I get fully stopped out on each of the 3 of the 5 trades trades, while I'm profitable on the other 2 trades, that I won't get a Margin call and have my 2 trades I'm profitable on, get closed out .

Thanks for the help everyone, Very much appreciate it

Margin Deficit or Margin Excess consists of initial margin on each lot you trade + Gains - Losses (in case you trade a number of pairs) + Cash

You first have to find out what is the Initial Margin on each lot you trade, than use the formula above

Matt

Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
1 800 771 6748 local 561 367 8686 email [email protected]
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  #4 (permalink)
 mdsvtr 
Memphis,TN
 
Posts: 232 since Sep 2010

So, if I understand it correctly, the Formula would be......

1. The initial margin to trade 1 micro Lot on EUR/USD = $20
2. $20 per micro Lot x 10 Lots = $200 ( margin )
3. Max Risk on the trade is $100
4. So the amount of $ ( margin ) I'd have to have in my account at minimum would be $200 + $100 = $30

Just making sure I'm calculating required Margin requirement, as to avoid getting a Margin Call on say 1 trade that goes against me , while at the same time I have 2 other trades going on, that i am Profitable on, and because I'm not funded enough in my account ( covered ), to avoid having all of my " Profitable trades " be closed, to cover a Margin Call

Thanks again - Michael

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  #5 (permalink)
 
mattz's Avatar
 mattz   is a Vendor
 
Posts: 2,493 since Sep 2010
Thanks Given: 2,440
Thanks Received: 3,789


mdsvtr View Post
So, if I understand it correctly, the Formula would be......

1. The initial margin to trade 1 micro Lot on EUR/USD = $20
2. $20 per micro Lot x 10 Lots = $200 ( margin )
3. Max Risk on the trade is $100
4. So the amount of $ ( margin ) I'd have to have in my account at minimum would be $200 + $100 = $30

Just making sure I'm calculating required Margin requirement, as to avoid getting a Margin Call on say 1 trade that goes against me , while at the same time I have 2 other trades going on, that i am Profitable on, and because I'm not funded enough in my account ( covered ), to avoid having all of my " Profitable trades " be closed, to cover a Margin Call

Thanks again - Michael

Margins has nothing to do with your stops. Only point #2 matters ($200)
There is a maintenance margin and initial margin. So long as your cash is between the two you should be fine.

Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
1 800 771 6748 local 561 367 8686 email [email protected]
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  #6 (permalink)
 
Jason Rogers's Avatar
 Jason Rogers 
New York
 
Experience: Intermediate
Platform: Strategy Trader
Posts: 166 since Aug 2010
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mdsvtr View Post
I have been trading Forex pairs here recently ( small amount of $ , still getting my feet wet )

My question comes down to Margin / Margin Calls , and how to avoid getting " Called Out " and having your position(s) automatically closed

For Example..... Say I have $200 in my account to trade with
I only want to risk $100 on the trade, and my Stop is 100 pips from my Entry
So, I buy ( trade ) 10 micro Lots of the EUR/USD , this having a $100 of my $200 account at risk

I'm using FXCM to trade Forex, and the Margin required per 1 Lot to trade the EUR/USD is $20
So to place this trade, I would have all of the money in my account tied up in the Required Margin
If I lose on the trade, and get stopped out at the Full $100 I had at risk, would I get a Margin Call or would I still have $100 left in my account to trade with, and could then, Buy 5 micro Lots on the EUR/USD ?

I'm just a bit confused as to how Margin / Margin Calls work on the Forex markets and want to make sure that if I open an account with $4000 , and have 5 different trades going on at the same time, while risking a max of $100 per trade, that if worst case scenario, I get fully stopped out on each of the 3 of the 5 trades trades, while I'm profitable on the other 2 trades, that I won't get a Margin call and have my 2 trades I'm profitable on, get closed out .

Thanks for the help everyone, Very much appreciate it

Hi Mdsvtr,

In order to explain how you can avoid a margin call, I will first have to clarify for you how margin works when trading forex.

First, since you live in the US, the minimum margin requirements set by the CFTC for forex trades apply to you. That means you have to set aside at least 2% of the face value of your open positions as used maintenance margin (labeled as Usd Maint Mr in the Accounts window on your Trading Station).


The Simple Dealing Rates window will show you the minimum margin requirement (MMR) you would have to set aside for 1 micro lot (1000 currency units) of any currency pair. Notice that the MMR for EUR/USD is $32, while the MMR for USD/JPY is $20. That's because 1000 Euros is worth more than 1000 US dollars.


Aside from your used maintenance margin (Usd Maint Mr), you also want to pay attention to your usable maintenance margin (Usbl Maint Mr). That is what's left of your equity after you subtract your used maintenance margin (Usd Maint Mr). If your usable maintenance margin (Usbl Maint Mr) falls to zero, that is when you would get a margin call.


However, the margin call procedure should be seen as a last resort measure designed to prevent your account from ever going negative. FXCM has a No Debit Balance Policy which means that even though you are trading a position size larger than the amount of money in your account, you cannot owe money due to trading losses.

If you use proper risk management and avoid overleveraging your account (avoid opening trades that are too big for your equity) then you dramatically reduce your risk of getting a margin call. A general rule of thumb is to try never to exceed 10:1 leverage (and even less is better when you're new to forex trading). That means if you have $50000 in your account, you never have more than ten times that amount in open positions total at any one time. Since each micro lot is worth 1000 currency units, $50000 would allow you to open 500 micro lots based on this rule of thumb.


In the example above, the account has just under $50000 in equity. I opened 500 micro lots in EUR/USD. That required me to set aside $16,000 in used maintenance margin (Usd Maint Mr). That leaves just under $34000 in usable maintenance margin (Usbl Maint Mr). This DailyFX article has more information the importance of using appropriate amounts of leverage.

If you have questions about our services at FXCM please send me a Private Message.
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  #7 (permalink)
 mdsvtr 
Memphis,TN
 
Posts: 232 since Sep 2010

Thank you mattz and Jason for the help. I really appreciate it

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  #8 (permalink)
 
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 mattz   is a Vendor
 
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mdsvtr View Post
Thank you mattz and Jason for the help. I really appreciate it

You welcome, best of luck and a happy long weekend.

Matt

Trading futures and options involves substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results. You may lose more than your initial investment. All posts are opinions and do not claim to be facts. Please conduct your own due diligence. Use only Risk capital when trading Futures.
1 800 771 6748 local 561 367 8686 email [email protected]
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