Forex trades are almost entirely margined -- in effect, the broker gives you the opportunity to make trades with money you don't actually have. The average leverage on the forex is very high -- between Leveraging an account to the maximum That's when you get a margin call from the broker.

If you want to continue trading, you'll have to put more money in your forex account. So the simplest answer to the question "What is a margin call" is that it's a demand from your broker to put more money in your account if you want to continue to trade.

The more complicated question is: Most Americans are familiar with the real estate market, where the majority of residential purchases require the buyer to put up a minimum of 20 percent of the value of the house before the mortgage company supplies the remaining 80 percent.

That's effectively five to one leveraging. If the mortgage industry operated like the forex, with Consider also that the mortgage industry also has extensive qualifications you need to meet in order to take out the loan in the first place, beginning with proof of income.

Understanding Margin – eqogypacuc.web.fc2.com

Your mortgage payments can only total around 30 to 40 percent of annual household earnings. You also have to have a relatively extensive record of paying your bills on time.

Contrast that with the forex where the only thing you need to open your account is an ID and a forex trading margin example or debit card.

Forex Leverage and Margin Explained - eqogypacuc.web.fc2.com

That's right -- you really don't need to put up any money at all. Effectively, you're trading with borrowed money from the start. And you don't have to demonstrate that you can actually pay back the money if you lose.

It can just go on your credit card as high-interest debt you'll pay back over months or even years. One last difference between the real estate market and the forex is that the ups and down in the real forex broker managed account industry are over relatively long periods of time.

In a single day or even a single month, the change in value of your house stock market graph msn ticker won't vary more than a few tenths of a percent. Normal volatility in the currency markets can wipe out highly leveraged traders in a matter of minutes, even seconds. If you're thinking that the way the forex operates is a recipe for disaster you're right -- not for brokers, but for the trader who's quickly in over his head.

The average forex investor loses -- more than two-thirds lose money, in fact. And it only takes on average about four months for the average trader to be so discouraged or broke or both that the account closes and he's out of the market entirely.

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With that in mind, consider the likelihood of the average forex trader getting a margin call. In a article in DailyFX, a well-known online forex market newsletter, trading instructor Tyler Yell identifies the trading behaviors that produce margin calls in a nutshell: Two simple ways to prevent a margin call are keeping your account well-capitalized and learning to cut your losses short to let your profits run.

The ability to close out a trade that is no longer working in the manner you hoped helps to ensure you are still around for the next opportunity to market presents. Search the site GO.

Forex Trading Basics Risk Management Getting Started Fundamental Analysis Technical Analysis Advanced Trading Forex FAQs. Updated August 16, What Causes Margin Calls In a article in DailyFX, a well-known online forex market newsletter, trading instructor Tyler Yell identifies the trading behaviors that produce margin calls in a nutshell: Get Daily Money Tips to Your Inbox Email Address Sign Up.

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