A margin call happens when the free margin in the account falls below the minimum margin required by the broker to cover the positions you have open.
What's the margin?
The assets which Darwinex puts at your disposal are leveraged financial instruments. This means that you will be able to open a trade without the need to have 100% of the capital.
The only thing we ask for is a margin or guarantee to open the trade, which will consist of a % of the nominal value of the trade.
If your account does no cover the margin, the trade will not be opened, and you will either have to choose a smaller volume, or deposit more capital in the account.
As a general rule, depending on whether the trader is categorized as retail or professional and on the asset chosen, the margin required at Darwinex fluctuates between 0.5% and 20% of the trade value.
Remember that 1 lot is equivalent to 100,000 monetary units of the base currency.
- 1 lot EURUSD = €100,000
- 1 lot USDCAD = $100,000
- 1 lot GBPUSD = £100,000
If the margin required for the three currency pairs were 3.33% (equivalent to a leverage of 30:1), to open a lot, Darwinex would require that you had in your account 3.33% of 100,000 monetary units, in other words:
- 1 lot EURUSD = €100,000 = €3,333 of margin
- 1 lot USDCAD = $100,000 = $3,333 of margin
- 1 lot GBPUSD = £100,000 = £3,333 of margin
NOTE: you can check actual margin requirements in the table of assets and spreads.
What's the Margin Call?
The margin % described in the previous point is enough to to be able to open a trade. However what happens if, once open, the account equity falls below this margin?
A margin call happens when the free margin in the account falls below the minimum margin required by the broker to cover the positions you have open. At Darwinex, a margin call is activated when the trading account equity reaches 100% of the margin.
The trader won't be able to open new trades on the account while the margin level remains below 100%.
Free margin can be increased either by depositing capital or by freeing up margin by closing trades.
Imagine that you have an account with €10,000 and you open 1 lot on the EUR/USD. This has a margin requirement of 3.33%, in other words, to buy/sell €100,000, Darwinex asks you for €3,333.
If this open trade suffers a loss of €6,667, the equity on the account would be €10,000 - €6,667 = €3,333. This is 100% of the required margin, hence a margin call would get activated.
Stop-Out, automatic closure of trades
If the trader does not increase the margin and the open position continues to fall until 50% margin, Darwinex will apply a Stop-Out, automatically closing the trades that have the highest losses with the aim of freeing margin. This will be done until the equity is again above the 50% margin.
In the previous example, Darwinex will process the sale of the open lot (Stop-Out execution) when the equity is equivalent to 50% of the margin, in other words €1,666.5.
Margin call and stop-out from the perspective of the broker
The margin call and stop out are security mechanisms which protect the broker from losses greater than the capital deposited by the trader.
Check margin requirements at Darwinex in the table of assets and spreads.