What is a margin call?
- 27 Nov 2023
- 2 Minutes to read
What is a margin call?
- Updated on 27 Nov 2023
- 2 Minutes to read
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What is margin?
The assets which Darwinex Zero puts at your disposal are leveraged financial instruments. This means that you will be able to open a trade without needing to provide 100% of the capital. In these cases we ask for "margin" or a guarantee to open the trade, consisting of a % of the nominal value of the trade.
If your account balance does not cover the margin, the trade will not be opened, and you will be required to either choose a smaller volume, or free up margin by closing an existing trade if you have open trades.
At Darwinex Zero the margin required for a trade is between 3.33% and 20% of the trade value. See leverage available per asset class here.
Example
Remember that 1 lot is equivalent to 100,000 monetary units of the base currency.
1 lot EURUSD = €100,000
1 lot USDCAD = $100,000
1 lot GBPUSD = £100,000
If the margin required for the three currency pairs were 10% (equivalent to a leverage of 10:1), to open a lot, we will require that you have in your account 10% of 100,000 monetary units, in other words:
1 lot EURUSD = €100,000 = €10,000 of margin
1 lot USDCAD = $100,000 = $10,000 of margin
1 lot GBPUSD = £100,000 = £10,000 of margin
Margin requirements
You can check actual margin requirements here.
What's the Margin Call?
The margin % described in the previous point is enough to be able to open a trade.
However, what happens if the account equity falls below this margin?
A margin call happens when the free margin in the account falls below the minimum margin required by the broker to cover the positions you have open.
At Darwinex Zero, a margin call is activated when the trading account equity reaches 100% of the margin.
The trader won't be able to open new trades on the account while the margin level remains below 100%.
Free margin can be increased only by freeing up margin by closing trades.
Please, note you must focus on your DARWIN's performance rather than the signal trading account results, hence we do NOT recommend to incurr in significant leverage to avoid margin call and stop-out situations.
Example
Imagine that you have an account with 100,000€ and you open 10 lots on the EUR/AUD. This has a margin requirement of 5%.
In other words, to buy/sell €1,000,000, Darwinex asks you for 50,000€.
If this open trade suffers a loss of 50.000€, the equity on the account would be €100,000 - €50,000 = €50,000. This is 100% of the required margin, hence a margin call would be activated.
Stop-Out, automatic closure of trades
If the trader does not increase the margin and the open position continues to fall until 50% margin, Darwinex Zero will automatically apply a Stop-Out, closing the trades that have the highest losses with the aim of freeing margin.
This will be done until the equity is again above the 50% margin.
Example
In the previous example, Darwinex Zero will process the sale of the open lot (Stop-Out execution) when the equity is equivalent to 50% of the margin that is 25,000€.
Margin call and stop-out from the perspective of the broker
The margin call and stop-out are security mechanisms that protect the broker from losses greater than the capital deposited by the trader.
Darwinex Zero environement takes as a reference real trading conditions, hence margin calls apply similarly.
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