A margin call is your broker’s warning that account equity has fallen too close to the minimum needed to keep your leveraged positions open. If you do not add funds or cut the position, the broker starts closing your trades automatically. It only happens on leveraged trading — CFDs, spread bets, margined forex — because those positions can lose more than the cash you put up. This guide explains the exact mechanics, the numbers that trigger it, and the specific habits that keep you clear of one.
Key points:
- A margin call is triggered when losses drag your equity below the margin your open positions require.
- On UK and EU retail CFD accounts, a broker must close you out when equity falls to 50% of required initial margin — the regulatory close-out rule.
- A margin call is the warning; the stop-out is the automatic closure that follows.
- Negative balance protection means a retail client cannot lose more than the funds in the account.
- You avoid margin calls by using low effective leverage, sizing positions by percentage risk, and placing stop-losses inside the margin buffer — not by watching the screen.
What is a margin call?
When you trade with leverage, you deposit a fraction of a position’s value as margin and borrow the rest of the exposure from the broker. Your equity is the account balance plus or minus the running profit and loss on open trades. As a losing position moves against you, equity falls while the margin the broker requires stays the same. A margin call is the point at which equity has dropped far enough that the broker formally warns you the account can no longer support its open positions at full size.
The call itself is a request: add funds or reduce exposure. It is not the end of the trade. What follows if you ignore it — the automatic closure of positions — is the part that does the damage. Because a margin call is a direct consequence of borrowing, it cannot happen on an unleveraged holding. If you buy £1,000 of shares outright, the worst case is the shares fall to zero; nobody calls you for more money. Leverage is what creates the call.
What triggers a margin call?
Brokers track a figure called the margin level, expressed as a percentage:
Margin level = (equity ÷ used margin) × 100
When you open a trade, the broker ring-fences part of your balance as used margin. If your equity is £1,000 and a position requires £500 of margin, your margin level is 200%. As the trade loses money, equity falls and the margin level drops toward 100%, where equity exactly equals the margin required. Two thresholds matter:
- The margin call level. Often set around 100% of required margin, this is where many brokers notify you that the account is under pressure. Some brokers issue the warning earlier; the exact percentage is set in the account terms, so check yours.
- The stop-out (close-out) level. A lower threshold at which the broker stops warning and starts closing positions automatically, usually beginning with the largest loser, until the margin level recovers above the line.
The single most important point: these are automatic. The broker’s system enforces both levels whether or not you are watching. A position left open overnight or across a weekend can be called and closed while you are asleep.
Margin call vs stop-out: what is the difference?
The two terms are often used interchangeably, but they are different events, and the gap between them is your last chance to act.
| Margin call | Stop-out | |
|---|---|---|
| What it is | A warning notification | Automatic closure of positions |
| Who acts | You — deposit or reduce | The broker — no input from you |
| Typical trigger | Margin level near 100% | Margin level at the close-out threshold (50% for UK/EU retail) |
| Reversible | Yes, if you add funds or cut size in time | No — the loss is realised |
In fast markets the two can happen almost together. A sharp gap — a surprise central-bank decision, a weekend news event — can take an account from comfortable to below the close-out level before any human could react. That is precisely why relying on the margin call as your risk control is a mistake: by the time it fires, you may have seconds, not hours.
A worked example: a £1,000 account hitting a margin call
Take a retail trader with £1,000 who opens a EUR/USD position at 30:1, the maximum leverage UK retail clients can use on a major forex pair.
- Account equity: £1,000
- Position size: £30,000 notional (30:1 on the full account)
- Required margin: £1,000
EUR/USD moves 1% against the position, a routine daily range:
- Loss: £30,000 × 1% = £300
- Equity now: £700
- Margin level: (£700 ÷ £1,000) × 100 = 70%
The account is now between the margin call and the close-out. A further 0.7% move against the position takes equity to £490 — below 50% of the £1,000 required margin — and the broker closes the trade automatically. A single 1.7% move in a currency pair, well within a normal day, has wiped out roughly half the account. Run the same trade at 5:1 and the 1% move costs £50, a 5% dent rather than 30%. The market move is identical; the leverage decides how close it takes you to a call. You can test these numbers for your own account size with our margin calculator.
What is the 50% margin close-out rule?
UK and EU retail traders have a hard regulatory backstop. Under FCA rules (PS19/18) and the equivalent ESMA product intervention measures, a broker offering CFDs to retail clients must close out a client’s positions when their account funds fall to 50% of the initial margin required to maintain them. The rule is a per-account floor: it exists to stop retail accounts from spiralling far past the point of no return during a bad run.
It also caps how far leverage can be pushed in the first place. Retail leverage limits under this EU (ESMA) and UK (FCA) framework are (brokers licensed elsewhere, such as in Australia, the US or offshore, set different and often much higher limits):
- 30:1 on major forex pairs
- 20:1 on non-major forex, gold, and major indices
- 10:1 on other commodities and non-major indices
- 5:1 on individual shares
- 2:1 on crypto, where it is permitted at all
One important note for UK readers: the FCA banned the sale of crypto derivatives, including crypto CFDs, to UK retail consumers from 6 January 2021 (PS20/10). If you are a UK retail client, crypto CFDs and the 2:1 figure above are not available to you, and any broker offering them is doing so outside FCA rules.
What if the market gaps past the close-out level?
Automatic close-out is not instant in every scenario. In a violent move — a currency peg breaking, a weekend gap — price can jump straight through the stop-out level before the broker can execute, taking the account below zero on paper. This is where negative balance protection matters. Under the same FCA and ESMA rules, a retail CFD client cannot lose more than the funds in their CFD account. If a gap drives the balance negative, the broker absorbs the shortfall; you do not receive a bill for the difference.
Two caveats. First, this protection applies to retail clients. Traders who opt up to elective professional status to access higher leverage give up negative balance protection, among other safeguards. Second, it applies to FCA and ESMA-regulated brokers. Offshore brokers advertising 500:1 leverage are outside this regime, which means no guaranteed negative balance protection, no Financial Services Compensation Scheme cover, and no Financial Ombudsman route if something goes wrong.
How do you avoid a margin call?
Avoiding margin calls is not about reacting faster. It is about building enough buffer that a normal adverse move never reaches the call level. Five habits do almost all the work:
- Use a fraction of the maximum leverage. The 30:1 ceiling is a legal limit, not a target. Keeping effective leverage in the 2:1 to 5:1 range across all open positions means a 1% market move costs 2–5% of equity, not 30%, and the close-out level stays far away.
- Size positions by percentage risk. Decide the most you will lose on a trade — commonly 1–2% of the account — and work backwards to the position size from your stop distance. Our guide to position sizing walks through the calculation.
- Place a stop-loss inside the margin buffer. A stop-loss set well before the close-out level closes the trade on your terms, at a price you chose, rather than leaving it to the broker’s stop-out at 50% of margin.
- Check effective leverage across every open trade. Add up the notional value of all positions and divide by account equity. Three trades of £25,000 notional on a £5,000 account is 15:1 effective leverage, whatever the individual ratios say. Keep the total sensible.
- Do not hold heavy leverage through known events. Central-bank decisions, major data releases, and weekends carry gap risk. Reduce size or close before them rather than trusting a stop that a gap can leap over.
None of these require you to watch the screen, which is the point. A margin call is what happens when the buffer was too thin to begin with. Build the buffer and the call never comes.
Do margin calls affect long-term investors?
If you buy shares, funds, or an ETF outright with your own cash, you can never receive a margin call — there is no borrowing to call in. The risk appears only when you borrow to invest, such as a share-dealing margin account where the broker lends against your holdings. There, a fall in the collateral value can prompt a call to top up the account or sell holdings. For most long-term investors the simplest protection is the most effective: do not use leverage for buy-and-hold positions, and keep margin trading — if you use it at all — separate from your core investments. If you want the mechanics of leverage itself, our explainer on leverage in trading covers how it amplifies both gains and losses.
Related reading
- Leverage in trading: how it amplifies both gains and losses
- Position sizing: how to calculate the right trade size for your account
- Stop-loss orders: where to place them and the trade-offs involved
- Risk-reward ratios: what they mean and how to use them before entering a trade
- CFDs explained: how contracts for difference work and what makes them risky
- Spread betting vs CFDs: how they differ and which suits you
Frequently asked questions
What happens if I ignore a margin call?
If you do nothing after a margin call and the position keeps losing, your equity falls to the stop-out level and the broker closes positions automatically to protect the account. For UK and EU retail CFD clients this close-out is required at 50% of the initial margin. You do not get a further warning at that point, and the loss becomes real. Acting on the call — by adding funds or reducing the position — is the only way to keep the trade open on your terms.
Can I lose more than my deposit on a margin call?
As a retail client of an FCA or ESMA-regulated broker, no. Negative balance protection means your losses are capped at the money in your CFD account, even if a sharp market gap drives the balance below zero before the broker can close you out. This protection does not apply to accounts classified as professional, nor to offshore brokers outside FCA and ESMA rules, where you can in principle owe more than you deposited.
What is the difference between the margin call level and the stop-out level?
The margin call level is where the broker warns you that equity is running low relative to the margin your positions need — often around 100% of required margin. The stop-out level is lower, and it is where the broker stops warning and starts closing positions automatically. For UK and EU retail CFD accounts the stop-out is set at 50% of initial margin by regulation. The window between the two is your opportunity to add funds or cut the position before closure is taken out of your hands.
Do margin calls happen on stocks and shares ISAs or ordinary share dealing?
No. A stocks and shares ISA and a standard share-dealing account hold assets you have paid for in full, so there is no borrowing and no margin to call. Margin calls only arise on leveraged products — CFDs, spread bets, margined forex — or on a dedicated margin account where you borrow against your holdings. Keeping long-term investments unleveraged removes the risk entirely.
How much margin do I need to avoid a call?
There is no single number, because it depends on your position size and how far the market moves. The practical answer is to keep a large buffer: use low effective leverage so that a normal adverse move — say 1–2% — consumes only a small share of your equity, and place a stop-loss well before the close-out level. If a 1% move against you would take your margin level anywhere near 100%, the position is too large for the account.
This article is educational and not financial advice. CFDs and other leveraged products are high-risk: most retail accounts lose money. VLT Markets is a publisher, not a broker, and does not provide trading services.
