What is a margin call? Margin levels, stop-outs and forced closures, explained

A margin call is a demand from your broker for more money, or fewer open positions, because losses have pushed the collateral in a leveraged account below the level the broker requires. If you do not meet it, or the account keeps falling, the broker can close your positions for you. For retail CFD clients in the EU and the UK, that forced closure is required by rule once the funds in the account fall to 50% of the margin needed to keep positions open.

This guide explains how margin, the margin call and the forced close-out (often called a stop-out) fit together, and how the rules differ for CFDs and forex, US shares and futures. It does not recommend any broker or strategy.

Margin is collateral, not a fee

When you trade with leverage you put up only part of the position’s value. That deposit is margin: collateral that stays in your account while the position is open, as distinct from a cost you pay away. What it is called varies by market. US rules for retail forex call it a security deposit; the CFTC glossary describes futures margin as a deposit that acts as a performance bond; for US shares it is the part of the purchase you pay for yourself, with the broker lending the rest.

Two levels matter in most markets:

• Initial margin is what you need to open a position.
• Maintenance margin is the minimum the account must keep while the position is open.

Your account’s equity is your cash plus or minus the running profit or loss on open positions. As prices move against you, equity falls, while the margin the positions need stays roughly where it was. The gap between the two is the buffer that absorbs losses. A margin call happens when that buffer is used up.

Trading platforms commonly show the relationship between equity and the margin in use as a single percentage, often labelled “margin level”. The name and the exact thresholds are set by each broker, so read them in the account terms rather than assuming.

How a margin call and a close-out work

Example, with hypothetical numbers: a trader deposits 1,000 in a CFD account and opens a position that needs 400 of margin. Equity is 1,000 and the margin level is 250%. The market moves against the position and the trader is 500 down, so equity is 500 and the margin level is 125%. If the broker sends a margin call at 100%, it does so when losses reach 600 and equity equals the 400 of margin in use. Under a 50% close-out rule, the broker must close one or more positions once equity falls to 200, half of the 400 required. At that point the trader has lost 800 of the original 1,000, and a fast market can carry the closing price further still.

Three points follow from that arithmetic. First, the margin call is a warning and the close-out is the action; some brokers send the first, and for retail clients every regulated CFD provider in the EU and UK must carry out the second. Second, the close-out does not return your deposit; it protects what is left. Third, a position can be closed at a worse price than the trigger level, because the broker closes at the next available price, not at the moment you would have chosen.

You can use our margin calculator to see how much margin a position needs before you open it, and the position size calculator to size a trade to the loss you can accept.

CFDs and forex in the EU, UK and Australia

The European Securities and Markets Authority’s 2018 measures for retail CFD clients include “a margin close out rule on a per account basis”. ESMA says it standardises “the percentage of margin (at 50% of minimum required margin)” at which providers must close out one or more of a retail client’s open CFDs. Because it applies per account, the test is the whole CFD account, not each position separately.

The UK Financial Conduct Authority made the same rule permanent in policy statement PS19/18. Firms must close out a customer’s position when their funds fall to 50% of the margin needed to maintain their open positions on their CFD account. The same package limits leverage to between 30:1 and 2:1 depending on the underlying asset, and guarantees that a client cannot lose more than the total funds in their trading account.

In Australia, ASIC’s product intervention order standardised CFD issuers’ margin close-out arrangements, which it describes as acting as a circuit breaker to close out one or more of a retail client’s CFD positions before all or most of the client’s investment is lost. The scale of forced closures before that order was large: ASIC reported that over 1.1 million CFD positions were terminated under margin close-out arrangements during a volatile five-week period in March and April 2020, across the retail clients of a sample of 13 CFD issuers. In the order’s first six months, ASIC reported an 87% decrease in margin close-outs affecting retail client accounts per quarter on average.

These protections apply to retail clients. Our guide to leverage limits and negative balance protection explains who counts as retail, and why a professional classification or an offshore entity can remove them.

Retail forex in the US

US rules work through the security deposit rather than a CFD-style close-out percentage. Under the CFTC’s rule 17 CFR 5.9, dealers and futures commission merchants must collect a minimum security deposit set by the registered futures association, which cannot be less than 2% of the notional value for major currency pairs and 5% for all other pairs.

If the deposits held are not enough to meet that requirement, the firm is required to collect additional security deposits from the customer or liquidate the customer’s positions. In practice that is the US version of the margin call and the close-out.

Shares on margin in the US

For shares, the starting point is the Federal Reserve’s Regulation T. Its supplement sets the required margin for a margin equity security at 50 percent of current market value, or the percentage set by the regulatory authority where the trade occurs, whichever is greater. FINRA puts it the other way round: brokers can lend a customer up to 50 percent of the purchase price of a margin equity security for new purchases.

Once the position is open, FINRA Rule 4210 sets the maintenance requirement at 25 percent of the current market value of margin securities held long. Brokers can, and often do, set higher “house” requirements. If an account drops below these limits, FINRA says the customer must either deposit more collateral or liquidate positions.

The disclosure statement that FINRA Rule 2264 requires firms to give margin customers is blunt about what happens next. Among its points:

• you can lose more funds than you deposit in the margin account;
• the firm can sell your securities or other assets without contacting you;
• you are not entitled to choose which securities are sold to meet a margin call;
• the firm can raise its house maintenance requirements at any time without advance written notice;
• you are not entitled to an extension of time on a margin call.

Unlike the EU and UK CFD rules, there is no negative balance protection here: you remain responsible for any shortfall after a forced sale.

Futures

The CFTC glossary describes the futures margin call plainly: if the equity in a customer’s account drops to or below the maintenance margin level because of adverse price movement, the broker must issue a margin call to restore the customer’s equity to the initial level. That last point catches people out. Topping up to the maintenance level is not enough; you must return to initial margin.

Exchanges specify initial and maintenance margin for each contract, but futures commission merchants may require more. A customer who fails to meet margin calls can have the account liquidated, with open positions offset by the brokerage firm. Our guide to how futures contracts work covers daily settlement, which is why futures margin calls can arrive at the end of any trading day.

What to check before you trade on margin

• The trigger levels. Find the margin call level and the close-out level in your account terms, and whether they apply per position or across the whole account.
• How the broker closes positions. Does it close the largest losing position first, or all of them? Does it act at any hour the market is open?
• Whether negative balance protection applies. It does for retail CFD clients in the EU, UK and Australia, but not for US share margin accounts.
• Holding costs. Overnight financing reduces equity day by day, which brings a margin call closer. Our swap cost calculator shows what that adds up to.
• Who regulates the account. The protections above depend on the entity and the regulator. If a firm pressures you to deposit more to “save” a position, check its licence and the enforcement tracker.

Frequently asked questions

Is a margin call the same as a stop-out? No. A margin call is a request or warning that your account is below the required margin. A stop-out, or close-out, is the broker closing positions. For retail CFD clients in the EU and UK, the close-out must happen once funds fall to 50% of the margin needed.

Will my broker always contact me before closing positions? Not necessarily. FINRA’s margin disclosure statement says most firms will try to notify customers of margin calls but are not required to, and can sell without contacting you. CFD close-out rules are automatic once the threshold is reached.

Can I lose more than I deposited? Retail CFD clients in the EU, UK and Australia are protected against negative balances on their CFD account. US share margin accounts carry no such protection, and FINRA’s disclosure warns that you can lose more than you deposit.

How much do I need to add to meet a futures margin call? Enough to restore your equity to the initial margin level, not just back to maintenance, according to the CFTC glossary. Your broker may set levels above the exchange’s.