Margin Calls

“When I get a margin call I’m not sure which positions I should close” This stock trading question comes from Andrew A.

Hmmm…

The first thing is that it sounds like you’re getting a few margins calls, and if that’s the case you’re trading with too much exposure and too much leverage. That rarely works out well.

There really is no reason to get a margin call if you are using prudent risk management and position sizing. So to start with you may wish to assess those. It’s always great to reap the rewards when things are going well, but the key to long term success is surviving when things go awry – which they will at some stage.

To answer the specific question, and assuming your broker hasn’t done it automatically for you, the answer would be to exit the worst performing positions or those positions that are considerably larger than the average. Correct position sizing will look after the latter going forward, but for now it should be a priority to reel in the exposure.