【Column】Margin maintenance rate being “high means safe” is not true — the real distance to a margin call
“Margin maintenance is at 1,000% so it’s safe” — When you’re using EAs, you tend to look only at the maintenance rate number for reassurance. But,even a high maintenance rate doesn’t mean the account has much health left. Today I’ll outline how this works and what indicators truly matter.
A real example. Balance1,530,000 yenin a Gold EA account carried a unrealized loss−1,220,000 yen. At that time, available margin (the account’s real health) was310,000 yen. About 20% of the balance remained. However, the displayed margin1,448%. Looking at the numbers alone may seem “safe,” but the reality wasclose to a margin call.
Why does this happen? The answer lies in how the maintenance rate number is constructed.
Margin maintenance rate is calculated by the following formula.
Available margin＝ Balance + Unrealized P/L (＝ the actual health of the account).Required margin＝ the minimum amount needed to maintain the currently held positions. Here the key point is thatrequired margin is determined by the lot size. If the lot size is small, the required margin is small, andthe denominator is small so the maintenance rate appears large.
In the previous example, 31万 (310,000) yen available margin ÷ (small) required margin = 1,448%. Even if the numerator (health) decreases a lot, a small denominator keeps the % high. Therefore, a high maintenance rate does not always equate to safety.
- Keep lot sizes modest. Decide capital size by “how far unrealized losses can go at worst,” not maintenance %.
- Trade with excess funds. Being near the margin is dangerous even if maintenance appears high.
- Know the maximum levels for averaging-down types. Estimate unrealized losses if fully loaded.
- Constantly monitor distance to margin call. It feels more rational to think in dollars than in %.
Also, we offer a free indicator that automatically summarizes on a chart theAvailable margin, distance to margin call, and effective leverage. The free tool “MarginGuard” is distributed. You don’t have to calculate everything each time; the risk level is indicated by signal colors (available at the end of the article as a free gift).
- Maintenance rate is a ratio of “Available margin ÷ Required margin.
- With smaller lots, % tends to behigher, so a high percentage does not guarantee safety.
- What really matters areAvailable margin, distance to margin call, and worst-case scenario
- Do not be comforted by the %; consider theaccount’s health and price distance.
※This article is for information provision and not for investment solicitation. The displayed results are historical performance and do not guarantee future profits. FX/CFD trading involves risk. Please make investment decisions at your own risk.