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Margin call examples?

  • #1
  • First Post: Edited 4:44am May 6, 2018 3:40am | Edited 4:44am
Hi All,

Sorry for the rookie question. I would like some help on trying to understand how the margin call would happen, the broker has mentioned if your equity is below 50% you will get a margin call/positions closed. Is my below example correct ? if not can you correct it so I can make sense of it all please.

If my Account Balance is $1,000 and I buy 1 mini Lot of Gold @ 1300 using margin .7% =$91.00 (margin required) total notional $13,000

Remaining equity in my account would be $909

If Gold moved down to $1250, my running PnL would $503.50 (10 x $50 + variation margin $3.50) my remaining Equity would $496.50

Equity in percentage 496.50/1000 = 49.65% So now I would get a margin call ?


Thanks,
  • #2
  • May 6, 2018 3:49am May 6, 2018 3:49am
Quoting Onyx1
Hi All, Sorry for the rookie question. I would like some help on trying to understand how the margin call would happen, the broker has mentioned if your equity is below 50% you will get a margin call/positions closed. Is my below example correct ? if not can you correct it so I can make sense of it all please. If my Account Balance is $1,000 and I buy 1 mini Lot of Gold @ 1300 using margin .7% =$91.00 (margin required) total notional $13,000 Remaining equity in my account would be $909 If Gold moved down to $1250, my running PnL would $504.50 (10...
What is the leverage you are using for your account
  • #3
  • May 6, 2018 5:05am May 6, 2018 5:05am
There are two levels mentioned: the margin call and stop out level.

Margin call simply means, that your broker "calls" for more margin. This is more or less unimportant. The crucial limit is the stop out level. Here positions will be forced closed brokerside.

Your calculation is furthermore not correct. The level is calculated on the used margin, not your equity! So having your 50% stop out level example the equation would be:

Account equity = Required Margin x 50% (your stop out level)

As a result you would get positions force closed once your equity drops below 45,50$.
  • #4
  • May 6, 2018 6:03am May 6, 2018 6:03am
Quoting Drolph
There are two levels mentioned: the margin call and stop out level. Margin call simply means, that your broker "calls" for more margin. This is more or less unimportant. The crucial limit is the stop out level. Here positions will be forced closed brokerside. Your calculation is furthermore not correct. The level is calculated on the used margin, not your equity! So having your 50% stop out level example the equation would be: Account equity = Required Margin x 50% (your stop out level) As a result you would get positions force closed once your...
Thanks for explaining that to me.

So just to confirm the margin call is also known as the variation/maintenance margin?

I'm actually looking at IG Markets (not sure if your familiar with them) https://www.ig.com/au/cfd-trading/ch...s/margin-calls

Close out terms

  1. If your equity drops beneath 50% of your margin requirement

Are they calculating the close out based on your equity ?

  • #5
  • Edited 7:14am May 6, 2018 6:58am | Edited 7:14am
Quoting Onyx1
{quote} So just to confirm the margin call is also known as the variation/maintenance margin?
No. Maintenance margin describes the amount you have to keep to maintain an open position. Falling below this level means you are no longer able to open additional positions.

edit: sorry, just had a look at IG as an example afterwards. As they start margin calling once the equity drops below 100% it is the same in this particular case. Not generally.

Quoting Onyx1
{quote}If your equity drops beneath 50% of your margin requirement Are they calculating the close out based on your equity ?
They calculate it the way I have explained above.
  • #6
  • Edited May 7, 2018 5:00am May 6, 2018 9:19pm | Edited May 7, 2018 5:00am
This is what's listed on there academy course explaining it.

These payments are properly known as 'variation margin', although people usually just refer to them as 'margin'. A request for variation margin is called a margin call.

so they call Margin Call as Variation Margin ?

Example
Say you buy 8000 shares at 220p using leverage. The value of your position is therefore £17,600. The provider asks for an initial margin payment of 5%, which is £880.
The share price then drops by 1p to 219p, reducing the value of your position to £17,520. The margin requirement falls to 5% x £17,520 = £876 as a result.
However, although the initial margin requirement has reduced, you now have a running loss of 1p x 8000 = £80.00 to add to this, bringing the total required to keep your position open to £956.

so the above example is for Margin Call(Variation Margin) ?

And the below link simply explains the margin call closeout based on Equity over Deposit (Equity/Deposit) ? I know you mentioned it as margin required X 50% = margin call closeout, which is how its explained (Sorry took me sometime to understand that)

They mention the formula is ( current Equity minus initial margin plus +/- PnL) Divided by Margin deposited = %

If my available deposit drops below 50% my position/s will be closed out.

https://www.ig.com/au/cfd-trading/ch...s/margin-calls
  • #7
  • Last Post: Edited 10:14pm May 9, 2018 9:39pm | Edited 10:14pm
So when it comes to maintenance margin do you have to cover the face value loss your incurring from price moving against you?

They have the following example under maintenance margin
https://www.ig.com/au/learn-to-trade/margin-explained

My account balance is $4000 - Company XYZ’s price then drops 50 points to $1.70. This reduces the overall value of your position to $13,600 (8000 x $1.70).
Although this reduces your initial margin to $680 (5% of $13,600), you now have a running loss of 50 points. This means you now owe maintenance margin of $4000 (8,000 x $0.50 points) bringing your total margin requirement to $4680.

Does that mean I need to have enough funds so my usable margin balance can cover the face value loss plus the new initial deposit which adds up to a total of $4680 to continue having my position open (I believe they refer usable margin as "available" on there web platform)

Just trying to also understand how maintenance margin is different to margin call close ?
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