The ability to navigate margin trading is an important part of determining each trader’s level.
Margin trading allows traders to expand their profits while making a profit. However, margin trading also comes with some very serious risks and liabilities that every trader needs to be aware of.
Have you ever had multiple margin calls?
This is the last news that almost any trader would want to see, but it will happen to him 100% of the time.
Fortunately, there are some good tips for avoiding margin calls, but first let’s look at what a margin call is.
What is a margin call?
Margin calls are issued when the equity in the margin account falls below the maintenance margin ratio.
Maintenance margins are set for different accounts, investors and asset classes and can be adjusted by brokers as needed.
When the equity ratio of a margin account falls below the maintenance margin ratio, the broker will issue a margin call requiring the account holder to deposit funds until the maintenance margin ratio is met.
If the account holder fails to operate within the specified time, then the broker will begin liquidating the account holder’s position until the maintenance margin ratio is satisfied.
When an account holder wishes to maintain a position in the expectation that asset prices will rise, the broker will liquidate regardless of current or expected future prices.
Most margin calls occur when a position is held overnight and the asset has a wide spread the next day.
If you can’t deposit the money right away, it may not be long before a strong flat is implemented.
So how can you avoid margin calls?
Use stop-loss orders Wisely using stop-loss orders can help you avoid margin calls by reducing some or all of your losses before you reach the trigger point for margin calls.
The use of stop-loss orders allows you to maintain your margin ratio in a way that you can control, rather than letting your broker make the decision.
The main difference between using a stop-loss order and a forced closing by a broker is that a forced closing may often be at a very, very poor position, which is out of our control, and may be followed by an immediate reversal of price action.
Instead, use stop-loss orders to keep some under control.
Placing a stop-loss order on a portion of your position ensures that your account always meets the maintenance margin, which means you will never face a margin call.
Stop-loss is only a partial requirement and will not completely prevent you from receiving margin calls. If the CFD falls overnight and you plan to hold the position overnight, it is best to minimize the amount of margin you use.
Creating a large amount of margin risk overnight is not only poor risk management, but the potential downside risk can be catastrophic and even cause your account to be wiped out.
I don’t need to tell you more about the horror stories. How many investors lost six or seven figures overnight in March and April?
And in that case, most people don’t have the money to make margin calls.
Therefore, when trading on margin, be sensible and minimize risk if necessary.
This leads to the next tip, try not to hold large positions overnight.
Don’t hold a large amount of positions overnight, even if the domestic futures contract is suspended for a long time during the holidays, especially during the National Day and the Spring Festival, some investors will still choose to hold heavy positions during the holidays. Obviously, once extreme circumstances occur, they can’t bear it at all.
The same goes for overnight positions, where unexpected situations are inevitable.
As you begin your trading career, try to focus on trading on margin only during the day, and if you want to hold overnight, reduce your size until the risk is manageable.
I’ve heard too many stories of traders destroying accounts for this reason.
So learn from their mistakes and avoid holding large positions overnight, or even for the holidays.
Understand the margin requirements of brokers gold and silver volatility risk increased, hesitate to hit the limit of up and down, exchanges began to raise the margin ratio, this is the situation that everyone must understand.
Margin trading is a way for traders to make a living. It is a double-edged sword. If you use it badly, you will only hurt yourself.
Using it inresponsibly can quickly end your trading career.
Play it safe and trade small until you get the hang of it and are confident in your ability to leverage more.
