Different retail forex brokers and CFD providers have different margin call policies. Some only operate only with Margin Calls, while others define separate Margin Call and Stop Out Levels.

In the previous lesson, we went through a trading scenario where you were using a broker that operated with a Margin Call only.

In this lesson, we will go through a real-life trading scenario where the broker operates with a separate Margin Call Level and Stop Out Level.

The broker defines the Margin Call Level at 100% and the Stop Out Level at 50%.

What happens to your margin account when you’re in a trade that goes terribly wrong?

Let’s go find out!

Step 1: Deposit Funds into Trading Account

Let’s say you deposit $10,000 into your trading account. You now have an account balance of $10,000.

Step 2: Calculate Required Margin

You want to go long GBP/USD at 1.30000 and want to open 1 standard lot (100,000 units) position. The Margin Requirement is 5%.

How much margin (Required Margin) will you need to open the position?

Since our trading account is denominated in USD, we need to convert the value of the GBP to USD to determine the Notional Value of the trade.

£1 = $1.30

£100,000 = $130,000

The Notional Value is $130,000.

Now we can calculate the Required Margin:

Required Margin = Notional Value x Margin Requirement

$6,500 = $130,000 x .05

Assuming your trading account is denominated in USD, since the Margin Requirement is 5%, the Required Margin will be $6,500.

Step 3: Calculate Used Margin

Aside from the trade we just entered, there aren’t any other trades open.

Since we just have a SINGLE position open, the Used Margin will be the same as Required Margin.

Step 4: Calculate Equity

Let’s assume that the price has moved slightly in your favor and your position is now trading at breakeven.

This means that your Floating P/L is $0.

Let’s calculate your Equity:

Equity = Balance + Floating Profits (or Losses)

$10,000 = $10,000 + $0

The Equity in your account is now $10,000.

Step 5: Calculate Free Margin

Now that we know the Equity, we can now calculate the Free Margin:

Free Margin = Equity - Used Margin

$3,500 = $10,000 - $6,500

The Free Margin is $3,500.

Step 6: Calculate Margin Level

Now that we know the Equity, we can now calculate the Margin Level:

Margin Level = (Equity / Used Margin) x 100%

154% = ($10,000 / 6,500) x 100%

The Margin Level is 154%.