When trading on margin, it is important to understand the concept of maintenance margin and how it relates to margin calls. In this article, we will explain what maintenance margin is and how it can affect your trading account.

Maintenance margin is the minimum amount of equity that you must maintain in your trading account in order to keep your positions open. This equity is calculated as a percentage of the total value of your positions. The exact percentage may vary depending on your broker and the type of assets you are trading.

For example, if your broker requires a maintenance margin of 25%, this means that you must have at least 25% of the total value of your positions in your account at all times. If your equity falls below this level, it will trigger a margin call.

A margin call occurs when your equity falls below the maintenance margin level. This means that you no longer have enough funds in your account to cover the potential losses on your positions. In order to protect themselves, brokers will issue a margin call to their clients, requiring them to deposit additional funds into their account to bring their equity back up to the maintenance margin level.

If you fail to meet the margin call and your equity continues to fall, your broker may liquidate your positions in order to cover the losses. This is known as a margin call liquidation.

Maintenance margin is an important concept to understand because it directly affects the amount of leverage you can use in your trading. Leverage allows you to control a larger position with a smaller amount of capital, but it also increases the risk of potential losses. By maintaining a certain level of equity in your account, brokers are able to mitigate some of this risk and protect themselves from potential losses.

Additionally, understanding maintenance margin can help you manage your risk and avoid margin calls. By keeping a close eye on your equity and ensuring that it stays above the maintenance margin level, you can avoid the potential consequences of a margin call.

Maintenance margin is an important aspect of trading on margin. It represents the minimum amount of equity you must maintain in your account to keep your positions open. If your equity falls below this level, it will trigger a margin call and potentially lead to a margin call liquidation. By understanding maintenance margin and managing your risk, you can trade on margin more effectively and avoid potential losses.
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