Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.

Margin call

When the equity value of an investor’s account falls below the maintenance margin requirement​ ​, this results in what is called a margin call. Trading with margin is a method for traders to allow themselves greater exposure to the financial markets. Traders only need to pay a percentage of the full value of the asset, which will be considered their deposit, and by borrowing capital from the broker, they are able to trade larger amounts.

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Margin call definition

A deposit margin is needed to firstly open a position, and the maintenance margin​ is in place to keep the position open. Therefore, when a trader has encountered a number of losses and their account revaluation (equity) level falls below the minimum balance to keep positions open, this prompts a margin call, for which they must either invest more of their own funds or sell their assets in order to decrease the maintenance margin required.

Margin trading, otherwise known as trading with leverage​ ​, can result in both profits and losses for the investor, depending on if the market moves in a favourable or unfavourable direction to their position. In the latter case, professional traders run the risk of losing even more than their deposit value, as they are not covered by the negative balance protection that retail traders are entitled to. Traders should therefore firstly identify the risks associated with such trading methods before registering to trade with our spread betting and CFD trading products.

How does a margin call work?

Given that financial markets​ can be volatile and move rapidly, it is imperative that traders are notified when their equity is falling towards the maintenance margin requirement. When trading with CMC Markets, our customers are notified by email when this figure reaches 80% of the original value. This will require the trader to take action on their account before it reaches the minimum level, or they may be forced to sell assets to compensate, regardless of the market price at the time.

Margin call calculator

The maintenance margin percentage can differ depending on each broker; at CMC Markets, it stands at 50%. When a trader’s equity drops below this percentage, if the margin call is not met, the broker will automatically start to close their positions in order to reduce any further potential losses. This gives them the right to sell any positions that the trader is holding, with an additional commission charge for some transactions. This event is called a stop out or close out level.

Will a margin call liquidate trades?

We propose four different close out methods in order to give our clients a fair chance to redeem their positions. Where our maintenance margin requirement is 50% and our reset level is 70%, the following options apply:

  1. Standard – this will close out all bets on your account within applicable trading hours, at the first price available for a market order. Subsequent close outs may be carried out afterwards until your account revaluation level increase above the close out level.
  2. Last in, first out – this will close all or a portion of your most recent trade, repeated with your next most recent trade, as many times as needed until your account revaluation amount is above the reset level.
  3. Largest position margin first – this will close the positions in which the margin is largest, repeating until your account revaluation amount rises above the reset level. When only one position remains, bets will be closed on a “first in, first out” basis.
  4. Largest position loss first – this will close positions for which the unrealised loss is largest, repeating until the account revaluation amount increases above the reset level. When only one position remains, bets will be closed on a “first in, first out” basis.

Find out more about our CFD margin​ requirements.

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