Understand Clearly What Margin Level Is to Avoid Margin Call

Margin call (Margin Call) is an important concept that every margin trader needs to understand clearly. It is a situation when the trading platform sends a notification (via message, email, or phone) requesting you to deposit additional funds to maintain losing positions; if not, the platform will forcibly close these orders. Depending on the asset type and each platform’s terms, the margin call ratio varies.

Margin - Basic Margin Trading Activity

Margin trading is a method that allows investors to borrow additional money from the platform to increase purchasing power, by collateralizing the current funds in the account. Thanks to this mechanism, with a small capital, you can control larger orders.

When the asset price increases as predicted, profits are amplified by the leverage ratio. Conversely, when prices decrease, the ratio between the funds in the account and the collateralized funds will not be enough to sustain the order, and the platform will perform a “margin call” – requesting additional funds to secure the position.

###The Relationship Between Leverage and Margin###

Leverage and margin have an inverse relationship:

• 2:1 leverage = 50% margin
• 5:1 leverage = 20% margin
• 10:1 leverage = 10% margin
• 20:1 leverage = 5% margin
• 100:1 leverage = 1% margin
• 200:1 leverage = 0.5% margin

###Illustrative Example of Margin Trading###

Suppose you have $10 in your account. With 1:10 leverage from the platform, you can open an order worth $100. In this case, your $10 is the required margin, and the platform will provide an additional $90 so you have $100 to trade.

What Is Margin Level and Its Importance

Besides the required margin, you need to maintain a reserve margin – which is the unused funds in your account, sufficient to cover losses if your open positions lose.

What is margin level? It is the ratio between the maintenance margin and the initial margin. This index usually ranges from 50% to 100% depending on each platform’s regulations. Margin level reflects the safety level of your account – the higher, the better, because it indicates how much room you have to withstand further market fluctuations.

Margin trading allows profit amplification but can also cause you to lose more than your initial capital. Therefore, most platforms use account protection tools to ensure you do not suffer excessive losses.

When Does a Margin Call Occur?

A margin call occurs when open orders move against your prediction, causing the funds in your account to be insufficient to cover the losses. At this point, you have two options:

First, if you still believe the market will reverse in your favor, you can deposit more money into the account to maintain the position.

Second, if you see no signs of reversal, you should close losing orders immediately to limit damages.

The stop loss tool is the most effective way to avoid a margin call – it will automatically close the order when the price hits your preset loss threshold.

7 Effective Methods to Avoid Margin Call

###● Deposit Additional Funds Promptly###

The most direct way is to add money to your account. You will have a larger buffer to withstand price volatility. This strategy is suitable if you believe the movement is only a temporary pullback. However, if the price does not recover, you will lose more capital.

###● Adjust Trading Size(

If your capital is limited, trade with smaller lot sizes. This helps reduce the risk of margin call in case of unexpected movements.

)● Limit the Number of Open Orders###

Avoid opening many small orders on the same asset in the same direction. This is equivalent to one large order but makes it harder to control margin maintenance. Focus on fewer orders and manage them carefully.

(● Use Mandatory Stop Loss)

The stop loss order is an indispensable tool in margin trading. It helps you define acceptable risk levels, avoiding waiting for a margin call without knowing what to do.

(● Avoid Trading During Major News Announcements)

When there is big news ###economic reports, interest rate decisions, non-farm payroll data, the market can be highly volatile and fast-moving. You are more prone to margin calls if not prepared properly.

● Limit High Leverage Usage

High leverage 100:1, 200:1 will cause the maintenance margin to decrease very quickly. With a small account balance, you will soon receive a margin call. Beginners should start with low leverage 2:1, 5:1 or avoid leverage altogether.

● Prepare Carefully When Trading Cryptocurrencies

Crypto assets are extremely volatile. If trading margin on coins, keep sufficient reserve funds in your account, open orders with appropriate sizes, and always activate stop loss.

Conclusion

Understanding what margin level is and how margin calls work is the foundation for safe trading. Not all investors are suitable for margin trading – it requires knowledge, risk management skills, and strong psychological resilience.

Before engaging in real margin trading, it’s recommended to practice on a demo account to better understand the mechanisms, position management, and how to use protective tools. This way, you can avoid costly mistakes and build a sustainable margin trading strategy.