Can you explain margin windows and magin calls to me for forex trading?

[Forex W]

Hi,

I'm new to Forex and just started working my way through babypips but I have a question that I can't seem to find an answer to.

According to ibfx (not sure if url link is permissible here), margin level is defined as:

margin level = current equity in the account / current amount of margin in use

I've heard that brokers will make margin calls when margin levels are at 50%, sometimes 80%. I do not understand why this is the case.

I would think that as long as the equity in the account is equal to or greater than the amount required to open the position that the trade could be sustained.

I can see a margin call if a fluctuation of one pip would bring the equity below this amount but I do not see how a 50% margin affects this.

If someone could provide some example numbers perhaps it would help clear this one up for me.

Thanks,

Fortexwindo

[Paul]

I don't trade currency, but here is how that margin requirement works:

1) You have $12k in the account.

2) You make a $20k investment:
$12k your money + $8k margin
margin % = $8k/$20k = 40%

3) investment drops to $10k
$2k your money + $8k margin
margin % = $8k/$10k = 80%

Now you are only risking $2k of your money and $8k of your brokers. This means they are taking more risk than you are, so that is why they don't like it. They are that much closer to losing the money that you borrowed from them.

At 10% margin, the investment must lose 90% before the broker loses money. At 90% margin, the investment must lose 10% before the broker loses money.

Taken to the extreme, 99% margin means that your broker has $99 at risk for each $1 that you put up, yet the equity still covers them. Would you lend money at that risk? Some stupid greedy bankers did and got burned when people put zero down on houses and walked away when the house prices dropped.