Trading mechanics
Margin call
A warning issued when equity falls to a set percentage of the margin required for open positions. It signals that the account is close to being unable to support the trades it holds.
GFN’s figure
GFN's risk limits bind well before a margin call would: on a $100,000 Instant account the daily loss limit is reached at $3,000 of loss, far above any margin threshold.
In detail
Margin call,explained
On a prop account a margin call is rarely the binding constraint, because the drawdown rules are tighter than the margin rules. An account that gets close to a margin call has usually breached a risk limit some distance earlier.
Where a margin call does matter is with oversized positions on a small account, which can reach margin thresholds and risk limits at nearly the same moment.
Related
Terms thatcome with it
Most rules only make sense next to the ones they interact with. These are the entries this one depends on.
Margin
The portion of account equity set aside to hold an open position. It is a deposit against the position rather than a cost, and it is returned to free margin when the position closes.
Free margin
Equity minus the margin currently committed to open positions. It is what remains available to open new trades or to absorb floating losses on the ones already running.
Stop-out
The automatic closing of positions when equity falls below the level needed to maintain them. On a prop account the phrase is also used loosely for hitting the maximum drawdown floor.
Leverage
The ratio between the notional size of a position and the margin required to hold it. At 1:50, $2,000 of margin supports a $100,000 position - it changes what you can open, not what you may lose.
Daily loss limit
The most an account may lose in one trading day before it breaches. Calculated as a percentage of the previous day's closing level, it resets at a fixed time each day and is the rule that ends most evaluations.
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