Margin control

Margin control mechanisms ensure market participants maintain sufficient collateral to cover potential losses on leveraged positions. When a trader opens a leveraged position, they are required to deposit an initial margin, which is a percentage of the total value of the position. For example, if they want to control $10,000 worth of assets and the margin requirement is 10%, they'll need to deposit $1,000. This margin acts as collateral for the trade and enables traders to control larger positions than their own capital would typically allow.

After opening the position, the trader must maintain a minimum level of equity in their account, known as the maintenance margin. This ensures that the position remains properly collateralized. If the value of the position moves against the trader and their account equity falls below the maintenance margin, the broker will issue a margin call. A margin call is a demand for the trader to deposit additional funds to restore the account to the required level. If the trader does not meet the margin call, the broker may liquidate the position to prevent further losses.

Margin control systems monitor positions in real time, tracking the value of the trader’s holdings and ensuring that enough collateral is maintained to cover potential losses. This system helps minimize counterparty risk, ensuring both the trader and the broker are protected from the risks associated with over-leveraging and margin shortfalls.