Margin Call Example With ForexGen

Assume you are a successful retired British spy who now spends his time trading currencies. You open a standard account and deposit $10,000.
When you first login, you will see the 10,000 in the "Equity" column of your "Account Information" window.

You will also see that the "UsedMrg" ('Used Margin') is "$0.00", and that the "UsblMrg" ('Usable Margin') is 10,000

Your Usable Margin will always be equal to Equity minus Used Margin.

Usable Margin = Equity – Used Margin

Therefore it is the Equity, NOT the Balance that is used to determine Usable Margin. Your Equity will also determine if and when a Margin Call is reached.

As long as your Equity is greater than your Used Margin, you will not have Margin Call.
( Equity > Used Margin ) = NO MARGIN CALL

As soon as your Equity equals or falls below your Used Margin, you will receive a margin call.
( Equity =<>

Let’s assume your margin requirement is 1%. You buy 1 lot of EUR/USD.

Your Equity remains $10,000. Used Margin is now $100, because the margin required in a mini account is $100 per lot. Usable Margin is now $9,900.

If you were to close out that 1 lot of EUR/USD (by selling it back) at the same price at which you bought it, your Used Margin would go back to $0.00 and your Usable Margin would go back to $10,000. Your Equity would remain unchanged at 10,000.

But instead of closing the 1 lot, you, the adrenalin junkie chopsocky retired spy that you are, get extremely confident and buy 79 more lots of EUR/USD for a total of 80 lots of EUR/USD. You will still have the same Equity, but your Used Margin will be $8,000 (80 lots at $100 margin per lot). And your Usable Margin will now only be $2,000

With this insanely risky position on, you will make a ridiculously large profit if EUR/USD rises. But this example does not end with such a fairy tale.

Let me paint a horrific picture of a Margin Call which occurs when EUR/USD falls.

The EUR/USD starts to fall. You are long 80 lots, so you will see your Equity fall along with it. Your Used Margin will remain at $8,000. Once your equity drops below $8,000, you will have a Margin Call. This means that some or all of your 80 lot position will immediately be closed at the current market price.

Assuming you bought all 80 lots at the same price, a Margin Call will trigger if your trade moves 25 pips against you.

25 PIPS!

MARGIN:

Margin is the deposit withdrawn from the client account as collateral to cover for losses if any that may result from trades that the client makes. It is returned to the client account when a trade is closed.

MARGIN CALL:

It is a demand for additional funds from the client to bring the client’s margin deposits to a required minimum level to cover for a possible adverse movement in price in the market.