Margin trading gives you the power to open bigger positions with borrowed funds — but it also introduces one of the most important (and feared) terms in trading: the margin call.
If you’ve heard traders mention margin calls with panic or regret, you’re not alone. Margin calls can wipe out your position, close trades automatically, or even leave your account in a deficit — if you’re not prepared.
In this post, we’ll explain how margin calls work, why they happen, and most importantly, how to avoid them with smart risk management.
What is a Margin Call?
A margin call occurs when your account’s equity falls below the required margin level to maintain your open trades. In simple terms, you don’t have enough money to keep your positions open — and your broker demands that you add more funds.
If you don’t act quickly, your broker may force-close your trades (liquidation) to prevent further loss.
📌 Example:
You open a trade worth ₹1,00,000 with ₹20,000 (5x leverage). If the trade moves significantly against you, and your equity drops below the broker’s minimum maintenance margin (say 50%), a margin call is triggered.
How Does a Margin Call Work?
🔹 Step 1: You Open a Margin Trade
You use leverage and put up a portion of the trade (initial margin).
🔹 Step 2: Your Trade Goes Against You
Losses eat into your equity, reducing your account balance.
🔹 Step 3: Your Equity Falls Below Maintenance Margin
Once it falls below a set threshold (e.g., 50% of used margin), you get a margin call alert.
🔹 Step 4: Action is Required
You must:
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Deposit more funds, or
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Close part of your position to reduce margin usage
🔹 Step 5: If You Don’t Act
Your broker may automatically close your positions — often at a loss.
📉 What Triggers a Margin Call?
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Sudden market volatility or news events
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Holding large positions with high leverage
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Ignoring unrealized losses
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Not setting a stop-loss
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Overtrading with low capital
✅ How to Avoid Margin Calls (Proven Tips)
1. Use Lower Leverage
The higher your leverage, the faster you can hit a margin call. Stick to 2x or 5x if you’re a beginner.
🔹 More leverage = more exposure = more risk.
2. Always Use a Stop-Loss
A stop-loss helps you exit trades before losses eat into your margin. Set it based on technical levels or risk percentage.
🔹 Rule of thumb: Never risk more than 1-2% of your capital per trade.
3. Monitor Your Margin Level Regularly
Most trading platforms (including Market Trade) show your margin level as a percentage.
🟢 Margin Level = (Equity ÷ Used Margin) × 100
If your margin level falls near 100%, you’re close to a margin call.
4. Don’t Use Full Margin on Every Trade
Leave a buffer in your account to absorb price swings. Don’t stretch your account to the limit.
🔹 Example: If you have ₹50,000, don’t use all of it for margin. Keep at least 30–40% free.
5. Diversify Instead of Doubling Down
Don’t add to losing trades. Instead, diversify across multiple small positions and manage exposure to avoid putting all your capital at risk.
6. Stay Updated on News and Volatility
Avoid opening large positions before:
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Major economic events
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Earnings reports
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Geopolitical news
🔹 High volatility can quickly trigger margin calls, even on small positions.
🔍 Margin Call vs Stop-Out: What’s the Difference?
| Term | What It Means |
|---|---|
| Margin Call | Warning to add funds or reduce exposure |
| Stop-Out | Broker forcibly closes positions if ignored |
Most brokers have a stop-out level around 50% margin level — if you don’t act in time, your trade is closed.
📊 Real-World Example
Let’s say you trade ₹1,00,000 worth of gold using ₹20,000 margin (5x leverage). The market drops 2%.
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Loss = ₹2,000
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New equity = ₹18,000
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Margin level = (₹18,000 ÷ ₹20,000) × 100 = 90%
You’re now very close to a margin call.
Conclusion
A margin call is a warning — and a wake-up call. The best traders know how to avoid them altogether by using risk management, setting stop-losses, and respecting leverage.
Margin trading offers great potential — but without discipline, it can lead to losses and stress. Protect your capital by trading smart, not hard.
Trade Confidently with Market Trade
At Market Trade, we help you stay ahead of risks with:
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Real-time margin alerts
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Negative balance protection
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Easy-to-read dashboards
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Expert support
👉 Sign up now and take control of your margin trading journey!
