Causes of Margin Calls in Trading
To understand margin calls, traders must first understand margin. Simply put, margin is the amount of money required to keep a trading position open. The margin needed to maintain a trading position will be greater when the losses that occur are getting bigger. If the trader's available margin (free margin) runs out, the trader will receive a love letter from the broker, namely a margin call, in the form of a notification to increase the deposit of funds, because the existing margin is not sufficient to hold a trading position. If the trader does not immediately deposit funds, the trading position will be forcibly closed by the broker. If you have been hit by a margin call, usually the account is no longer saved, because you have lost a lot and the funds have run out. There are even times when the trader's account becomes minus, not just 0.
Margin calls can occur by novice traders and even professional traders. Traders must understand the causes of margin calls. Thus, traders can become smarter in avoiding margin calls in trading traders. Here's why:
Not Installing Stop loss
A trader who allows his trading position to suffer heavy losses also has the potential to experience it. The greater the value of the trader's loss will also be followed by an endless free margin. This will cause traders to meet the scourge that traders are very afraid of.
Too Many Open Positions
Traders who open positions or use too large lots are prone to margin calls. Trading with many open positions is tempting. Traders will get a big profit opportunity. However, behind big profits, big losses also await traders. Changes in price can cause huge losses if a trader opens too many positions.
Deposit Value Too Low
Many traders allow traders to trade with a minimum deposit value. This is very interesting for novice traders. However, traders should be wary. If the trader's funds are too small, it means that the trader will run out of free margin more easily. As a result, the opportunity to get a margin call is greater.
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