Trading and investing on the popular eToro platform can be a breeze, thanks to its intuitive interface and wealth of learning resources. However, understanding the technical aspects of trading, like margin calls, is crucial to avoid disruption and financial setbacks. In this comprehensive guide, we’ll explore margin calls on eToro, how they work, and how to avoid them.
Key Takeaways
βMarign calls occur when your cash equity falls below the platform’s minimum requirement
βeToro requires a minimum cash equity of 20% to maintain open positions.
βTo avoid margin calls, monitor your account balance and open positions closely.
βUtilize stop-loss and maintenance margin tools to manage risk.
βRemember, you cannot lose more money than you’ve deposited on eToro due to its Negative Balance Protection policy.
πΉ Understanding Margin and Cash Equity on eToro
Table of content
- πΉ Understanding Margin and Cash Equity on eToro
- π€ What is a Margin?
- π° Cash Equity: The Key to Avoiding Margin Calls
- π¨ Margin Call Triggers and How to Respond
- β οΈ When Does a Margin Call Occur?
- π Responding to a Margin Call
- π eToro’s Negative Balance Protection Policy
- π οΈ Tools for Managing Risk and Avoiding Margin Calls
- π Stop-loss and Maintenance Margin
- π Conclusion: Stay Informed and Trade Wisely
- eToro Trading Strategies: β’ Learn more about eToro Trading Strategiesπ
- Market Conditions:
- Strategies:
- Risk Management:
- GENERAL RISK WARNING
- Author & Expert Trader - Financial Analyst :
π€ What is a Margin?
A margin is a percentage of your account’s total cash equity that eToro requires to trade without restrictions. eToro enforces a minimum cash equity balance of 20% to ensure traders can maintain open positions and avoid incurring losses they can’t afford.
π° Cash Equity: The Key to Avoiding Margin Calls
Your cash equity consists of:
- Your account’s available balance (deposited funds used to open new positions)
- Total capital allocated to open trades (manual trades, CopyTraders, and CopyPortfolios allocations)
- Pending orders
- Your net profit or loss (sum of all current gains or losses on open trades)
You can view your total equity in the “Portfolio” tab on eToro.
π¨ Margin Call Triggers and How to Respond
β οΈ When Does a Margin Call Occur?
Margin calls occur when unfavorable market movements result in net losses that your cash equity cannot cover. This can happen when your available balance is negative, and the value of open positions is too low to compensate.
π Responding to a Margin Call
When approaching a margin call, eToro sends a notification alert. At this point, you have two options:
- Close (sell) open positions to lower the margin amount
- Add more funds to your account to increase your cash equity
Be cautious when adding funds to maintain losing positions, as markets can be volatile and unpredictable. Always analyze your trading strategy, assets, and open positions and set appropriate stop-loss levels to limit losses.
π eToro’s Negative Balance Protection Policy
With eToro’s Negative Balance Protection policy, you cannot lose more money than you’ve deposited on your account. If eToro performs a margin call and closes all open trading positions, any losses exceeding your deposits will be absorbed by the platform, and your total equity will be reset to zero.
π οΈ Tools for Managing Risk and Avoiding Margin Calls
π Stop-loss and Maintenance Margin
Setting a stop-loss level can help safeguard against losses after unfavorable price movements. On eToro, you can set a stop-loss of up to 50% when opening a position (unless it’s a non-leveraged long position). Once the trade is open, you can extend the stop-loss level, but this will require using some of your available balance to maintain the allowed margin level.
Maintenance margin ensures that you don’t lose more than your original investment in case of unfavorable price movements. It acts as a buffer, utilizing your deposited funds to maintain the required margin level for trading safety.
π Conclusion: Stay Informed and Trade Wisely
Now that you have a better understanding of margin calls, initial and maintenance margins, and how they work on eToro, you can trade with more confidence. Remember to monitor your account balance and open positions closely, set appropriate stop-loss levels, and avoid investing more capital into losing positions. As markets can be highly volatile, informed and cautious trading is your best bet for success. Happy trading on eToro!
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