1. Know WTF a margin call is.

Understanding what margin call is and how it works is the first step
in knowing how to avoid one.

Most new traders want to focus on other details of trading such as

technical indicators or chart patterns, but little thought is given to
the other important elements such as margin
requirements, equity, used margin, free margin, and margin levels.
If you’re hit with a margin call out of the blue, this usually means
you have no clue what causes a margin call and are opening
trades without considering margin requirements.

If this is you, you are doomed to fail as a trader. Guaranteed.

A margin call occurs when your account’s Margin Level has fallen
below the required minimum level. At this point, your broker will
notify you and demand that you deposit more money in your
account to meet the minimum margin requirements.

Nowadays, this process is automated so your broker will probably

notify you by email or text rather than receiving an actual phone
call.
2. Know what the margin
requirements are even before you
place ANY order.
Knowing the margin requirements BEFORE you open a trade is
crucial.

The concept of margin call isn’t thought about much by most

traders, especially when they are placing pending orders with their
broker.
Typically, traders tend to place an order with their broker and it
remains open until the limit price is reached or until the pending
order expires.

When you place a pending order, your trading account is not

affected because margin is not applied to pending orders.

However, this exposes you to the risk of the pending order being
automatically filled.

If you’re not properly monitoring your margin level, when this order
gets filled, it could result in a margin call.
In order to avoid such a situation, you need to consider margin
requirements before placing an order.

You have to account for the margin amount that will be deducted
from your free margin, as well as having some additional margin
so your trade will have some breathing room.
When you multiple pending orders open, it can get quite confusing
and if you’re not careful, these orders could result in a margin call.

To avoid such a tragedy, it’s crucial that you understand the

margin requirements for each position you plan to enter.

3. Use stop loss orders or trailing

stops to avoid margin calls.
If you don’t know what a stop loss order is, you’re on your way to
losing a lot of money.

As a refresher though, a stop loss order is basically a stop order

sent to the broker as a pending order. This order is triggered when
price moves against your trade.

For example, if you were long 1 mini lot on USD/JPY at 110.50,

and you set your stop loss at 109.50.
This means that when USD/JPY falls to 109.50, your stop order is
triggered and your long position is closed for a loss of 100 pips or
$100.

If you traded WITHOUT a stop loss order and USDJPY continued

to fall, at some point, depending on how much money you have in
your account, you would trigger a margin call.

A stop loss order or a trailing stop order prevents you from taking
on further losses, which helps prevent getting a margin call.
4. Scale in positions rather than
entering all at once.
Another reason why some traders end up with a margin call is
because they misjudge price movement.

For example, you think GBP/USD has gone up way too high and
too fast and you believe that there is no way price can go higher,
so you open a HUGE short position.

This type of overconfident trading increases the probability of

triggering a margin call.

To avoid this, one approach is to build a trade position, also

known as “scaling in”.

Instead of trading with 4 mini lots right off the bat, start off with 1
mini lot. Then add or “scale in” to the position as the price moves
in your favor.

While you continue adding new positions, you can also start
moving the stop losses on the previous positions to reduce
potential losses or even lock in profits.
Position scaling can help you magnify your profits while trading
risk-free when you combine all the positions.

While this usually means that you’ll have to allocate more capital
towards the larger margin requirement, scaling in positions at
different price levels and using different stop loss levels means
that your risk of losses on the trade are spread out which lowers
the probability of a margin call (when compared to opening one
big position size all at once).

5. Know WTH you are doing as a

trader.
It’s not uncommon to hear about noob traders who are hit with a
margin call and don’t know what the hell happened.

These traders are the types of traders who are just focused on
how much money they can make and don’t know what the hell
they are doing and don’t fully understand the risks of trading.

Don’t be that trader.

Risk management should be your main priority, not profits.

Risk management is a big topic which is why we cover it in

detail here.
Conclusion
So there are five ways to help you avoid a margin call.

Pay attention to currency pairs you are trading and their margin

requirements.

Know when to cut your losses so you can trade another day.

Understand volatility and stay vigilant of news and events that

could trigger price volatility spikes that could put your account at
risk of a margin call.

Remember, as a trader, you should always prioritize risk

management over profits.