What is a margin call?

What is margin?

The assets which Darwinex Zero puts at your disposal are leveraged financial instruments. This means that you will be able to open a trade without needing to provide 100% of the capital. In these cases we ask for "margin" or a guarantee to open the trade, consisting of a % of the nominal value of the trade.

If your account balance does not cover the margin, the trade will not be opened, and you will be required to either choose a smaller volume, or free up margin by closing an existing trade if you have open trades.

At Darwinex Zero the margin required for a trade is between 3.33% and 20% of the trade value. See leverage available per asset class here.

Example

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 10% (equivalent to a leverage of 10:1), to open a lot, we will require that you have in your account 10% of 100,000 monetary units, in other words:

1 lot EURUSD = €100,000 = €10,000 of margin
1 lot USDCAD = $100,000 = $10,000 of margin
1 lot GBPUSD = £100,000 = £10,000 of margin

What's the Margin Call?

The margin % described in the previous point is enough to be able to open a trade.

However, what happens if the account equity falls below this margin?

At Darwinex Zero, 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 only by freeing up margin by closing trades.

Example

Imagine that you have an account with 100,000€ and you open 10 lots on the EUR/AUD. This has a margin requirement of 5%.

In other words, to buy/sell €1,000,000, Darwinex asks you for 50,000€.

If this open trade suffers a loss of 50.000€, the equity on the account would be €100,000 - €50,000 = €50,000. This is 100% of the required margin, hence a margin call would be 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 Zero will automatically apply a Stop-Out, 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.

Example

In the previous example, Darwinex Zero will process the sale of the open lot (Stop-Out execution) when the equity is equivalent to 50% of the margin that is 25,000€.

Margin call and stop-out from the perspective of the broker

The margin call and stop-out are security mechanisms that protect the broker from losses greater than the capital deposited by the trader.