Venturing on Forex | Before the Worst: Margin call

A sudden drop in the ever unstable market of Forex could mean disaster for an investor. It might get into the point wherein it would bring you to the brink of bankruptcy. Online brokers have a means to stop a trader from plunging down into a total disaster.

Once a position opens a part of the capital is frozen, and that part is called Security Deposit. It is intended to guarantee that a trader wouldn't lose more than what he is really capable of. The leverage size provided by the broker and the type and number of lost determines the size of the deposit. The remaining fund that may be used to open other positions are called Free Margin.

Even if a there's a deposit, traders should bear in mind that the remaining balance is also needed in backing up the capital from the temporary losses of the opened positions. There are times wherein an opened position loss would suddenly turn around and be converted into a profit. But when all else fails, and the assessment of the broker is otherwise, then the Margin call occurs.

Margin call signals the trader about his current loss and that the account is dwindling thus should be soon replenished. If unheeded, it would automatically close all the current opened positions and actual loss is incurred. In the bright side, at least the account wouldn't be zeroed to none. On the other hand, once the margin call was automatically activated real losses would be incurred and the chance of the account's recovery is slim. Only the untouched security is left which would turned into free margin.

As traders, we should be wary about it and shouldn't allow this to occur. It would really be a hard blow on our part and the recovery of the loss would really prove to be a challenge. It is like being in a quicksand with only your head remaining on the surface with nothing to cling on but your wits.