[Danny]

Right, so my broker has notified me they will start closing out my positions if I don’t deposit more cash? Is that legit? Can they do that?

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[James Barra]

Hi Danny,

Thank you for your message.

Can you provide more details about the circumstances?

Brokers can start closing out your positions in certain situations. For example, if you’re trading on margin, that is trading with borrowed funds, you normally have to maintain a minimum margin requirement that’s a percentage of the total value of your positions.

If the markets move against you and the value of your securities falls, your account may drop below the margin requirement. At which point, your broker will issue a margin call asking you to deposit more funds to return to this level.

If you don’t meet the margin call within the timeline your broker can close out your positions to meet the shortfall.

Brokers should make clear any margin requirements when you open an account, and you should have been sufficiently alerted that this could happen.

If you can provide more specific details about your situation it will help us in assisting you.

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[Tobias Robinson]

Negative balance protection also influences the broker here. If an account balance goes into the red, the broker will take on the liability for the “loss”. They will therefore close the trade before this happens – the margin call is your ‘warning’ that this is likely to happen unless the account balance is increased (via new deposits or the trade reversing).

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[James Barra]

Thanks Tobias. Helpful addition 👍

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[Danny]

Soz didn’t realised you guys had replied. Been speaking to my broker and understand it all now, they basically said similar to you guys. All sorted now and will be better prepared next time.

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[James Barra]

Glad to hear it.

Best of luck Danny.

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