Definition
What is Margin call?
A margin call is a warning that your equity no longer covers the margin required by open positions; if margin level keeps falling, positions are closed automatically (stop-out).
Margin level is equity divided by used margin, as a percentage. While it is high, you can open more trades. As losses grow, equity falls and so does the margin level.
Brokers set two thresholds: a margin call level, where you are warned or cannot open new trades, and a stop-out level, where the platform starts closing the largest losing positions.
In a prop firm account the daily and maximum loss limits are usually reached long before a stop-out, unless positions are far too large for the account.
Example
Example: a $10,000 account opens trades using $2,000 of margin, so the margin level is 500%. If losses take equity down to $1,000, margin level falls to 50%, a typical stop-out level.
At a prop firm
The Axora Funded platform closes the worst position when margin level falls below the stop-out level. With sensible position sizes, the 2-Step daily loss limit of 4% is reached much earlier.
Frequently asked questions
Is a margin call the same as breaching a rule?
No. A margin call is about available margin; a rule breach is about the loss limits of the account.
How do I avoid a margin call?
Size positions from your stop loss and risk per trade, not from the maximum leverage available.