Get your copy of the report "Removing Currency Risk In All Transactions" for Travel companies
Download

Glossary

Navigate the complex world of currency management with our comprehensive dictionary of financial terms and definitions.

margin call

A margin call is a demand to deposit additional funds or securities to cover possible losses. A margin call usually indicates that the collateral held for a given position has lost value. Let us imagine a situation where a ‘short’ EUR forward position is initiated, on which a 5% margin is requested. The position is ‘long’ USD 100,000 and the forward rate is EUR-USD 1.1111. Measured in EUR, the initial margin requirement is EUR 4,500 = 100,000 x 0.9000 x 0.05. If the forward rate moves to 1.1240, the forward position loses EUR 1,032.03. A margin call may be triggered if the ‘cover’ (the loss in proportion to collateral in deposit) falls below, say, 80%. This would be the situation in our example, as the ‘cover’ would be 77.07% = (4500 - 1,032.03)/4,500. An unheeded margin call on such a position may result in the automatic closing of the position at the prevailing market rate. That would happen if the ‘cover’ falls below, say, 60%.