Why Should You Avoid a Margin Call When Trading in Commodity Futures Market?

A margin call occurs when the value of positions in your account exceeds the amount that is available as equity in your account. Mainly traders result to margin calls because of poor trading practices. When trading in futures markets, you are advised to watch the contract size and ensure that you do not over trade your account. There are a number of things, which you can do to avoid being issued with margin calls and they include;
•    Trading with very low risk margins
•    Not overtrading your account
•    Using stop loss orders appropriately
•    Avoiding entering a trade unprepared
•    Avoiding premature entry and exit of positions
•    Trading with the trend and avoiding speculations

It is essential that you leverage the loss that you can bear. You should not risk more than 5% of your account equity. If you can maintain a risk percentage of about 2%, it means that even if the prices of the commodities go against your trade, you will not suffer from margin calls.

It is your responsibility to understand what a margin call means. You need to keep your account fully margined in all your trades. The futures commodity trading is highly profitable to the disciplined and experienced investors. However, for those who lack self management in trading, they are prone to risks of losing their money through extended losses.

When you are trading in this market, there are risks which range from system failures, illiquidity to market volatility. The possibility of changing political and economic conditions also affects the market substantially. There is a lot of enticement when it comes to futures commodity trading. This is because there is a high degree of leveraging available.

You can leverage what you want to gain as well as what you are willing to lose. If you want to gain big profits, you have to risk big losses. Because of the volatile nature of the market, price movements can change unexpectedly and this leads to a disproportional effect on your equity. Whereas the market movement may work in favor of your position, it may also go against your trade.

There is a possibility to sustain a total loss in initial margin funds and this is where you are required to deposit additional funds in order to maintain your position. When your account becomes under-margined, it means that it is insecure at that time and there is no adequate collateral equity in your account to support any further price movements against your position. At this time, a margin call is issued. This means that your order is cancelled and you meet any deficiency or debt balance as a result of the call. 

In essence, if you trade with the trend and avoid speculating the market movement, you are able to avoid getting into a situation where your account equity is put at risk. In addition, if you understand the right time to enter and exit the market you are also able to manage unexpected losses.

You should trade with very minimal percentage of your overall equity in order to bear the losses in the event of an untimely change in market movement. You also need to safeguard your position with a stop loss order.