In the world of Forex trading, all traders fear the dreaded margin call. What is it? What can traders do to mitigate it? Before we answer these questions, let’s first have a look at its basic concept.
What is Margin?
Margin in Forex is a deposit that you must put up as collateral to start a trade. Essentially, it is the minimum amount you need in your trading account to open a new position.
A margin call occurs when you no longer have any usable/free margin in your account. In other words, your account needs more funding.
When your margins are all wiped out, your broker will automatically close all your open positions. If you have open positions with a negative balance, one thing’s for sure – you’ll lose money.
Wondering how you can avoid a margin call?
Focus on the Market
You should always be in tune with the market conditions. Being late with the latest trends certainly has its price, and it’s HUGE.
Having focused attention on the market will enable you to avoid the unwanted effects of margin calls.
Practice Risk and Money Management
Practice a habit of proper risk and money management so you can easily wrestle with the temptation of overtrading. We all know that overtrading can put your money at a high level of risk which is as good as burning it.
Combat Your Greed
Forex trading offers an opportunity to build your wealth which may tempt you to push your greed button on. But as with any other ventures, greed can lead you to disastrous results. Be vigilant, not only on the market conditions but also on yourself. By preventing greed from taking over, you’re saving yourself from expensive trading losses.
Take Time to Find a Trusted Broker
You need to allot a serious amount of time searching for a trusted broker. By setting a standard and doing your research, you can avoid costly problems in the future. Careful and thorough research in choosing a trusted broker would undoubtedly pay off.
Also read: Why Forex Trading is Not for Everyone