The Forex Margin Call

The Forex Margin Call

The Forex Margin Call! The Forex broker is willing to put up risk as far as a Forex trader’s open positions, but the trader must take responsibility for his trades. The Forex market is one of the most volatile in the world. That’s what makes it exciting, and often times very profitable. But there are times when the market is going to go against you, you’ll have a few positions open, and there becomes a need for a margin call.

Preventing the call

The most common way of preventing a margin call in Forex is to simply limit your open positions, which obviously lessens your exposure to risk. Scalpers that never have open positions, and even day traders that never go home with an open position are pretty much immune to the situation.

The longer term Forex trader should be careful. Good money management is the key to avoid a margin call. Don’t go crazy and don’t try to play catch-up. It so rarely works it’s never worth trying.

The stop loss is always your friend and a good limiter of the margin call. If you are managing your profit/loss ratio accurately with well placed stop loss orders, you should be able to keep your margin where it should be for the long term.

Manage your trading. Not just your quantities of trades, but also the amount of pairs you are in. The theory of ‘if you throw enough stuff against the wall, something is going to stick’ does not apply to trading Forex. If you are too spread out or your quantities are above and beyond your trading plan, you are setting yourself up for a margin call sooner or later.

Show them the money

Just like any store owner that keeps an inventory of his stock and refreshes it when he’s running low, so should the Forex trader keep an inventory of the amount of money in his account. After all, that’s the reason the margin call is used. It’s a warning system telling the Forex trader he’s low in stock – his money.

You should never have to trade scared. If you’re seeing your margin dropping, make sure you have a cushion so as to be able to trade the Forex market comfortably. If you don’t have the money to deposit, then lower your quantities until your margin is back up to where it should be. Do not, under any circumstances, ‘give it a shot.’ You will be setting yourself for failure and a prospect of a new career.

Being on margin call is not the worst thing in the world. The key is to adjust and move on. It’s all part of the business.

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