What you’ll learn:
- What a margin call is
- How margin works
- Why margin calls happen
- What happens during a margin call
- Examples of margin calls
- How to reduce the likelihood of a margin call
- Plus500’s risk management tools
- Key takeaways
- FAQs
What is a margin call?
A margin call occurs when the equity of your trading account falls below the minimum amount required to maintain all open positions. It may be mitigated in certain circumstances if additional funds are deposited or open positions are closed to restore required margin levels.
How margin works
CFD trading operates on margin-you deposit only a fraction of the position's total value. This fraction is the initial margin required to open trades.
The maintenance margin represents the minimum equity you need to have in the trading account to keep positions active. On Plus500, maintenance margin equals 50% of the initial margin requirement.
Example:
- Position value: £10,000
- Initial margin (20%): £2,000
- Maintenance margin (10%): £1,000
If your equity drops to £1,000 or below, you'll receive a margin call.
Why margin calls happen
1. Market volatility
Sudden price movements rapidly erode account equity. Economic announcements or geopolitical events can cause significant gaps within minutes.
2. Over-leveraging
Positions too large relative to account size leave insufficient buffer for normal fluctuations. Maximum leverage creates margin calls during minor adverse movements.
3. Multiple positions
Numerous simultaneous positions concentrate risk. Combined losses deplete equity faster than single positions.
4. Missing stop-loss orders
Trading without stop-loss protection leaves positions vulnerable. Stop-losses automatically close positions at predetermined levels, limiting losses. However, it is important to note that a stop-loss does not guarantee loss limitation, especially during volatile markets.
What happens during a margin call?
It is the client’s responsibility to monitor their account equity and margin requirements at all times.
If a client’s equity falls below the required maintenance margin, Plus500 may close some or all open positions. Position closures occur only when the available equity is insufficient to maintain open positions.
Steps that may, in some circumstances, reduce the likelihood of immediate position closure:
- Deposit additional funds
- Close losing positions
- Reduce position sizes
Automatic position closure:
If equity falls below the maintenance margin, Plus500 automatically closes open positions, typically starting with the positions with the smallest initial margin, until margin requirements are met.
Important:
During periods of extreme market volatility, losses may occur rapidly and before positions can be closed. While Plus500 provides negative balance protection in regulated jurisdictions, preventing account balances from going below zero, clients may still incur substantial losses.
Real-World Example
Scenario:
Trader opens crude oil CFD with £5,000 balance:
- Position: 100 barrels at £75 = £7,500 exposure
- Initial margin (20%): £1,500
- Maintenance margin (10%): £750
Market drop: Oil falls to £60 (£15 decline)
Impact:
- Loss: 100 × £15 = £1,500
- Remaining equity: £3,500
- Margin call triggered if the maintenance requirement is exceeded
This demonstrates position sizing's impact on margin call risk.
How to reduce the likelihood of margin calls
1. Use stop-loss orders
Set stop-losses at levels representing acceptable risk, typically 1-2% of account capital per trade. Plus500 offers multiple order types, including guaranteed stop-losses on select instruments.
2. Maintain adequate balance
Keep substantial unused equity beyond minimum requirements. Maintain a 3-5 times required margin as buffer capital.
3. Manage position size carefully
Open positions that are appropriately sized relative to your account balance. Smaller position sizes require less margin and reduce the likelihood of a margin call during normal market fluctuations. By limiting exposure to individual trades, clients can better manage risk and avoid rapid equity deterioration.
4. Monitor regularly
Check positions multiple times daily during volatile sessions. Plus500's mobile app provides real-time margin indicators and alerts.
5. Know requirements
Research specific margin requirements for each instrument via Plus500's margin requirements page before trading.
6. Avoid high-impact news
Reduce positions or make use of stop-losses during major economic announcements that cause extreme volatility.
7. Practise first
Test strategies using Plus500's unlimited demo account with live data before risking real capital.
Plus500 risk management tools
- Real-time margin monitoring dashboard
- Margin call alerts via email and app
- Negative balance protection for retail clients
- Guaranteed stop-losses on select instruments
- Risk management calculators
Explore these features through Plus500's Trading Academy.
Key takeaways:
- A margin call occurs when account equity falls below the maintenance margin requirement
- Primary causes: market volatility and adverse market movements, over-leveraging, inadequate risk management
- Plus500’s maintenance margin is 50% of the initial margin
- Prevention: use stop-losses, monitor positions, maintain adequate balance, limit leverage
- Remember: CFDs carry a high risk of rapid capital loss due to leverage
*Past performance does not reflect future results. The above is for marketing and general informational purposes only, and are only projections that should not be taken as investment research, investment advice or a personal recommendation.
FAQs:
What percentage triggers a margin call on Plus500?
Margin calls occur when equity falls below the maintenance margin, which is 50% of the initial margin.
Can I get a margin call with stop-losses?
Yes. During gaps, prices may jump past stop-loss levels. Guaranteed stop-losses prevent slippage but may carry premium costs.
How quickly must I respond?
During extreme volatility, automatic closure can occur within minutes if market moves in an unfavourable direction.
What's the difference between initial and maintenance margin?
Initial margin opens positions (typically 3.33-50% of value). Maintenance margin keeps positions open ( 50% of initial margin).
