I used up many of my, “Oh, my gosh!” comments for the demo account already. Yet, the margin level has dropped to under 200%.
My very knowledgeable friend, had these recommendations:
In a margin trading account, if the margin gets below 200%, it typically means that the value of your assets has dropped relative to the amount you borrowed, thereby reducing your equity in the account. Here’s what you generally need to do when this happens:
Understand the Margin Call
- Margin Call: When your margin drops below the required level, your brokerage may issue a margin call. This is a demand to bring your margin equity back up to the required level. [In Forex, I think “blowing the account” is a more likely outcome. Different brokers handle things differently.]
Steps to Address a Margin Call
- Deposit Additional Funds: The most straightforward way to meet a margin call is to deposit more money into your margin account to increase your equity.
- Sell/Close Some of Your Positions: Another option is to close some of the positions in your account. Unfortunately, trying to outthink the bot by closing these trades could keep the account in dangerous territory for a longer time.
- Pray the market turns the other direction–immediately!
Monitoring and Preventive Measures
- Regular Monitoring: Keep a close eye on your margin account, especially during volatile market conditions, to ensure you remain above the minimum margin requirement.
- Prevent the bot from taking any new positions: A good bot will monitor some of these issues, but it won’t accept any blame if the market goes horribly the wrong direction.
- Diversification: Have multiple bots at the same broker. If one account gets really tight on margin, transfer money over from an account that is in a much more comfortable position. Don’t wait until it gets to 200%. Take action so it doesn’t arrive there.
- Use of Stop-Loss Orders: Implement stop-loss orders to automatically sell securities if their prices fall to a certain level, helping to limit potential losses. If you don’t like the way the bot does this or doesn’t do it, you can always intervene.
Algo bot trading is not risk free or completely hands off. Stay aware of what your bot(s) are doing. There are responses to everything. You just need to make sure you have enough warning. Good Luck!
