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Forex Margin

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Before a trader can use leveraging, he/she has to put a margin. The margin is a deposit of good faith also called the performance bond. When the forex trader fulfills the margin requirement of the brokerage firm, he can place an order larger than what he has in his trading account. In the event of the funds in the trading account fall below the margin requirement, the broker will close some or all of the trader’s market positions to make up for the shortfall.

And if even after closing all the trader’s market positions, there is still a shortfall for the margin requirement; the trader is subjected to a margin call by the broker. In such a case, the trader is required to deposit more money into his trading account in order to meet the margin requirement. In other words margin call is the broker's requirement that the client has to enhance security for the deal of “uncovered sale” type or “purchase with leverage”, which was carried out at the expense of broker's credit and led to current losses.

For example, if a trader has $10,000 in his trading account. This means that he has $10,000 useable margin. Supposing he uses $6000 in buying several lots of a currency pair, this would mean that he has $4,000 usable margin remaining. Thus, a trader can lose up to $4,000 before his broker will act to close his market position in order to prevent further losses.