Forex traders should be aware of Forex broker margin calls, especially those who are looking to apply leverage to their trades in the market for currencies.
A margin call happens simply when the value of a Forex trader's account balance falls below their Forex broker's maintenance margin. Margin calls are when brokers sell off all of the long, open positions and buys back all of the short, open positions that a currency trader is holding; this in theory leaves the trader in question with the Forex broker's set, required maintenance margin. A broker's maintenance margin is simply the amount of trading capital that a trader is required to have themselves, in order to open a single position in the currency market with that broker, for example if you applied 100:1 leverage to a trade you would need to hold 1% of the trade's worth.
The majority of Forex traders don't need to worry about margin calls, since they can easily be avoided with good money management. However, poor money management and poor implementation of money management techniques in Forex trading, can lead currency traders to experience margin calls.
If you want to avoid experiencing a margin call in the FX market, you should first be aware of your Forex broker's margin requirements, since different brokers can have different margin requirements. Once you are aware of your broker's maintenance margin, you will then know not to hold open positions that could put your Forex trading account balance below that margin, which would allow you to avoid margin calls. Of course you could still see one of these calls from your broker if you do not implement good money management into your currency trading, though.
Money management in Forex trading is extremely vital. If you do not implement good money management techniques like stops, you could not only deduce unnecessary losses in the Forex market, but you could also experience margin calls from your Forex broker which are obviously undesirable.
In order to adopt good money management in currency trading, all you have to do is devise a clear and concise trading plan early on in your Forex trading career. As long as it is clearly and concisely outlines all of the money management rules and techniques that you need to succeed, you will be fine, provided that you follow the trading plan of course. It can be difficult, especially for beginner traders, but it is important to remain disciplined and stay consistent with your investing. A good Forex trading plan will allow you to do this and this will help you to not only deduce more profits, but a good trading plan will also allow you to avoid margin calls from your Forex broker.
In conclusion, Forex broker margin calls occur when the total account balances of traders fall below the maintenance margins of their brokers. Maintenance margins of brokers are simply the amounts of trading capital that traders are required to hold in order to maintain certain, open positions in the Forex market. Margin calls are undesirable but they can easily be avoided; in order to avoid them, you should be aware of your broker's margin requirements and maintain good money management throughout your Forex trading career.
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