What Is Margin Call And Stop Out?
Forex trading is a professional job that requires responsibility and care of each participant. There is no place for passion or hope for good luck. For earnings in the forex market you need a precise calculation and the ability to quickly analyze changing market. At Forex is most commonly used principle of margin trading. What means the margin? The margin in the stock markets is becoming a kind of collateral for transactions and the service of such trades is called the margin trading.
What it means margin trading? the essence of this trade is as follows: at the conclusion of the transaction the investor does not pay the full amount of the contract, he uses borrowed money his broker but only a small deposit is debited from his own account. If the result of an operation carried out by the investor, is negative, the loss is covered by the security deposit. In the opposite situation, the profit is credited to the same deposit.
Margin Call is a special state of the account in which the losses on open transactions exceeds the permissible ratio of margin (for example half of the margin). At this point the broker refers to the trader offers to pledge additional funds. This treatment or Margin Call is demand of the margin. If the funds are not transferred to the broker’s account and the loss in the account continue to grow, the broker will close the position unilaterally. This second operation is called Stop Out. After it is generates the income statement. It will be as big as the difference between the acquisition price and the selling price for all open positions. In the worst case Margin call and the subsequent Stop Out will lead to that you will have in the account only the margin.