What Is a Margin Call?
A margin call occurs when your account equity falls below the minimum margin level required by your broker to keep your open positions active. When this happens, the broker will notify you that your account does not have sufficient funds to maintain your current exposure, and you must either deposit additional funds or reduce your position size to bring the margin level back above the required threshold.
If you do not act quickly enough after receiving a margin call, your broker may automatically begin closing your positions, starting with the largest losing trade, until your margin level is restored. This forced liquidation often happens at the worst possible time, locking in losses that might have recovered if the position had been held.
Understanding Margin, Free Margin, and Margin Level
To understand margin calls, you need to be comfortable with three key account metrics visible on MetaTrader 5:
Margin:
the amount of capital your broker sets aside as collateral to open and maintain your open positions. It is not a cost or fee; it is a temporary hold on part of your account balance.
Free margin:
the available capital in your account not currently being used as margin. Free margin is used to open new trades and absorb floating losses on existing ones.
Margin level:
expressed as a percentage, calculated as (Equity divided by Margin) multiplied by 100. A margin level of 100% means your equity exactly equals your used margin. Most brokers issue a margin call when this level falls to around 100% and begin automatic liquidation (stop-out) at a lower level, typically 50%.
Our guide on understanding leverage and margin in forex trading covers these concepts in further detail.
What Causes a Margin Call?
Margin calls are caused by a combination of overleveraging and adverse market movement. The most common scenarios include:
Using too much leverage:
opening positions that are too large relative to your account size means that even a small adverse price movement can significantly reduce your equity.
Holding multiple losing positions simultaneously:
several open trades all moving against you at once compounds the equity drawdown rapidly.
Trading without stop-losses:
without a defined exit point, a losing position can continue to drain your equity indefinitely until a margin call is triggered.
Trading around high-volatility events:
sudden large price moves on news events can push floating losses to margin call levels within seconds.
How to Avoid a Margin Call
1. Limit Your Leverage Usage
Bullwaves offers leverage of up to 1:500, but using maximum leverage on every trade is a fast route to a margin call. Professional traders rarely use more than a fraction of the leverage available to them. Using 1:10 or 1:20 effective leverage on any given trade gives your position room to breathe through normal market fluctuations without threatening your margin level.
2. Always Use Stop-Loss Orders
A stop-loss is your primary protection against a margin call. By defining in advance the maximum loss you are willing to accept on any trade, you ensure that no single position can drain your equity to a critical level. Never open a trade without a stop-loss in place.
3. Risk a Maximum of 1-2% Per Trade
Limiting your risk per trade to 1-2% of your account balance means that even a string of consecutive losing trades cannot bring you close to a margin call. This position sizing discipline is the foundation of sustainable trading.
4. Monitor Your Free Margin Regularly
Develop the habit of checking your free margin and margin level, visible in the MT5 Terminal panel, particularly when you have multiple positions open. If your free margin is low and you are holding positions through a volatile news period, consider reducing your exposure before the event.
5. Avoid Overtrading
Having too many simultaneous open positions multiplies your margin usage and your exposure to correlated market moves. If all your open trades are on USD pairs, a single strong USD move can trigger losses across all of them at once.
Margin Call Levels at Bullwaves
The specific margin call and stop-out levels vary by account type. You can find the exact parameters for the Classic, VIP, and ECN accounts on the Bullwaves account types page. Understanding these levels before you start trading allows you to plan your position sizing accordingly.
What to Do If You Receive a Margin Call
If you receive a margin call notification, do not panic. Your options are:
Deposit additional funds to restore your equity and margin level.
Close one or more of your open positions manually to free up margin.
Reduce the size of your largest position to lower margin requirements.
Whichever action you take, always analyze what led to the margin call before opening new trades. A margin call is a signal that your position sizing or risk management approach needs review.
Final Thoughts
A margin call is one of the most stressful experiences a trader can face, but it is entirely preventable with proper risk management. By using leverage responsibly, always trading with stop-losses, and limiting your risk per trade, you can build a trading routine that keeps your account well above margin call territory even during extended losing periods.
Risk Warning: Trading on margin involves significant risk and may not be suitable for all investors. You may lose more than your initial deposit. Ensure you understand margin requirements fully before trading. Bullwaves is regulated by the Financial Services Authority (FSA) of Seychelles under Equitex Capital Limited.
