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What is a margin call?
A margin call happens when the losses from a trade or investment exceed the margin that has been posted. Either more margin is posted or trades are closed.
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 varies by asset class — always check the leverage page for the current figures. 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
Margin requirements
You can check actual margin requirements here.
What is a Margin Call?
A margin call happens when the free margin in the account falls below the minimum margin required to cover your open positions. At Darwinex Zero, a margin call is activated when the trading account equity reaches 100% of the margin — at which point no new trades can be opened.
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.
Please, note you must focus on your DARWIN's performance rather than the signal trading account results, hence we do NOT recommend to incurr in significant leverage to avoid margin call and stop-out situations.
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
A Stop-Out is the automatic closure of your highest-loss trades by Darwinex Zero when your account equity falls to the stop-out level (currently 50% of required margin — verify the latest threshold on the assets page). Positions are closed in order of largest loss first, with the aim of freeing sufficient margin.
This will be done until the equity is again above the 50% margin.
Example
Using the previous example: the account had €100,000 equity and €50,000 of required margin (5% of €1,000,000). Darwinex Zero will trigger a Stop-Out and begin closing positions when equity falls to 50% of the required margin — that is, €25,000. Note that 10 lots were opened, not a single lot; the Stop-Out will close the position(s) with the highest losses first until the margin level is restored.
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.
Darwinex Zero environement takes as a reference real trading conditions, hence margin calls apply similarly.