This guide is provided by Alt21 Limited, trading as Alt21, an FCA authorised payments and FX provider and is intended for UK businesses considering FX hedging as part of their treasury activity. All examples provided are illustrative only and not a current or guaranteed rate. Please read the full disclaimer at the bottom of the page.
An FX margin call is one of those financial terms that sounds far more alarming than it really is.
If you’ve heard stories about providers asking businesses for additional funds during a forward contract, it’s easy to assume something has gone wrong.
In reality, a margin call is simply a way for some providers to manage the risk of large market movements while a contract remains open.
In this guide, we’ll explain what an FX margin call is, why it happens, how it relates to forward contracts and what finance teams can do to reduce the likelihood of receiving one.
And, to help with this explanation, we sat down with Chris Canning, Vice President of Sales & Trading at Alt21 and Tom Vooght, Head of Sales at Alt21, for their expert insights.
As Alt21 employees, their comments throughout this guide reflect their own experience working with Alt21’s clients and describe Alt21’s own products and approach, rather than independent market commentary.
Quick summary
- An FX margin call is a request from your FX provider to deposit additional funds while a forward contract is still open.
- A margin is a form of security rather than a change to your agreed rate, though it can mean finding additional funds at short notice.
- Exchange rates are unpredictable, so no one can guarantee that a margin call won’t occur. However, understanding your provider’s policies, discussing available credit facilities and planning your hedging strategy carefully may help reduce the likelihood.
- Margin calls are triggered by movement in the underlying exchange rate. A handful of factors influence how likely one is, and how large it might be.
Before entering into a forward contract, you should be aware that a margin call may require you to find a material sum at short notice, often within one to two business days. Margin calls cannot be predicted or ruled out, since they depend on how far currency markets move once a contract is open, and the amount required can be significant relative to the size of your contract. If you are unable to meet a margin call when it is due, this could affect your contract, your relationship with your provider, and your wider cash position. You should consider whether your business has access to sufficient working capital to meet a margin call before entering into a forward contract, and discuss your provider’s margin policy with them in advance.
What is an FX margin call?
A margin call is a request from your FX provider for additional funds, made when the value of your deposit against an open forward contract falls below an agreed threshold.
When a business books a forward contract, it agrees to exchange currency at a set rate on a future date.
Many FX providers ask for a deposit, sometimes called a margin, when the contract is opened. This deposit acts as security, giving the provider confidence that the contract can still be completed even if the market moves a long way from the agreed rate before it settles.
Here’s a simple way to think about it:
Imagine you’ve agreed to buy US dollars in three months using a forward contract. The exchange rate is fixed today, but the contract won’t settle until the agreed future date. If exchange rates move sharply during those three months, the value of that contract can change considerably.
If the movement is large enough, some providers may ask you to place additional funds on account until the contract settles. This is the margin call, and it’s how they ask you to top up your deposit so it continues to reflect that change.
Importantly, a margin call doesn’t change the exchange rate you’ve already agreed. Your forward contract continues exactly as before. The additional funds simply act as security for the provider while the contract remains open.
For businesses new to hedging, this can be one of the more confusing parts of forward contracts, and it’s exactly the kind of hedging jargon that can make FX products feel more complicated than they need to be.
Once you understand why margin calls happen, they become a manageable part of forecasting and cash flow planning, rather than an unexpected knock on the door.
It’s also worth remembering that not every FX provider manages margin in the same way. Some providers require margin more frequently than others, while different products and credit arrangements may affect whether margin is required at all. We’ll look at this in more detail later in the guide.
Why ask for an FX margin in the first place?
It’s easy to experience a margin call as one-sided, something asked of you, rather than something that also protects you.
When an FX provider agrees a forward contract with a business, it in turn holds a matching position with its own liquidity providers, the banks and institutions on the other side of the trade.
If the market moves sharply, a sudden fiscal announcement or an unexpected tariff decision can move currency markets within hours; those liquidity providers will call the FX provider for margin, just as the provider calls its clients.
If a provider couldn’t meet those calls, it would put its ability to honour every open forward contract at risk, including yours.
Tom says:
“At Alt21, we ask for margin as a protective measure, not only for us as a business, but predominantly for protection for our clients. If we can’t call our clients for margin, we can’t pay our liquidity providers, and that could mean we have to stop trading, which would mean the forward contracts we hold for our clients would cease as well. It’s not there to annoy the client. It’s an extra layer of security, and it protects them as well as us.”
Seen this way, a margin call isn’t your provider protecting itself at your expense. It’s part of the same chain of security that keeps your own forward contract able to complete on the terms you agreed.
Businesses considering a deposit free option should ask their provider how that structure affects the level of protection behind the contract, since removing a deposit requirement does not remove the underlying market risk.
The margin behind a contract is part of what keeps the wider chain able to stand behind the agreed rate when markets move sharply.
Why are margin calls triggered?
Margin calls are triggered by movement in the underlying exchange rate. A handful of factors influence how likely one is, and how large it might be.
Movement away from your agreed rate
The main trigger is straightforward:
If the exchange rate moves so that the currency you’ve agreed to buy becomes cheaper on the open market than the rate in your forward contract, your provider’s exposure grows.
The bigger the movement, the more likely a margin call becomes.
The size of your contract
Larger forward contracts naturally carry more exposure in cash terms.
A small percentage move on a £2 million contract represents a much bigger sum than the same move on a £50,000 contract, so margin requirements tend to scale with contract size.
How far ahead you’ve hedged
Contracts that run for many months, sometimes called window forwards, give exchange rates more time to move before settlement.
Providers often ask for larger initial deposits, or apply margin calls more readily, on longer-dated contracts for this reason.
Market volatility
Economic data releases, interest rate decisions and unexpected political events can all move currency markets quickly.
Sharp swings can trigger a margin call even where the underlying trend hasn’t shifted much overall.
Deposit levels
Some FX providers allow businesses to reduce the likelihood of a margin call by depositing a higher percentage of the contract value upfront.
A smaller deposit leaves less room for the market to move before you’re asked to top it up. Because every provider manages risk differently, two businesses with similar forward contracts may have different margin requirements.
None of this means forward contracts are inherently unpredictable, but whether one is right for your business will depend on your own circumstances and risk profile.
The deposit sitting behind a forward contract is designed to move with the market, in the same way a mark-to-market (MTM) valuation shows the current value of an open position at any given point.
Understanding the mechanics in advance is what turns a margin call from a surprise into an expected part of managing a hedge.
An example of an FX margin call
Sometimes it’s easier to understand a margin call by following a simple example.
Imagine your business imports products from the United States and knows it’ll need to pay $500,000 to a supplier in six months.
To help plan future costs, you enter into a forward contract at an exchange rate of 1.25 GBP/USD.
At the time you book the trade:
- You know exactly how many pounds you’ll need when the payment is due.
- Your supplier knows they’ll receive the agreed amount in US dollars.
- Your exchange rate is fixed for that future transaction.
Three months later, however, the market has moved significantly.
The GBP/USD exchange rate is now 1.40.
Although your contract hasn’t changed, its market value has. Because your provider is committed to honouring the original agreement, they may ask you to deposit additional funds until settlement.
This is the margin call.
Nothing about your commercial agreement has changed:
- Your supplier still receives the same amount.
- Your agreed exchange rate stays exactly the same.
- Your settlement date doesn’t change.
The only difference is that your provider has requested additional security while the contract remains outstanding.
If no margin call is required, nothing changes. If one is required, it’s simply part of the provider’s risk management process rather than an indication that your hedge has failed.
Why margin calls feel stressful, and what actually helps
Most of the anxiety around margin calls comes from not knowing one is coming.
An unexpected request for extra funds, with little warning of the size or timing, forces a finance team to go back and check their contract terms after the fact, often under time pressure.
That uncertainty, more than the underlying mechanics, is usually what makes a margin call feel stressful.
Chris says:
“I think the anxiety comes when you don’t know, when you’re in the dark. Let’s say I’ve got some forward contracts out and suddenly my FX broker calls me for £50,000, that’s a request out of the blue, and I’d probably have to go back and check my terms to see if it’s right. Whereas if you’ve got everything out in the open, you know exactly what your position looks like, and that removes it. It doesn’t take the call away, but at least you’ve got a heads-up that it might be coming.”
The practical fix isn’t to eliminate margin calls, since that isn’t fully possible while currency markets move. It’s to remove the “in the dark” element.
If you can see your position relative to a call at any point, you’re no longer waiting for a surprise; you’re watching a number you already understand.
That shift, from being told after the fact to seeing it coming, is most of what separates a stressful margin call from a manageable one, and it’s exactly what the strategies below are designed to support.
How businesses can reduce the likelihood of a margin call
While FX margin calls are a normal part of how forward contracts work, there are several ways finance teams can reduce the likelihood of one, or plan more comfortably around it if one arrives.
Understand your provider’s margin policy before you commit
Before agreeing a forward contract, ask how margin is calculated, how much notice you’ll typically get, and what payment window applies if a call is made. Clear pricing information upfront makes this much easier to plan around.
Consider a higher initial deposit
Paying a larger deposit at the outset can reduce the chance of a margin call later, since there’s more of a buffer before the market needs to move before a top-up is requested.
This is worth weighing against your available cash flow, since it means committing more funds earlier in the process.
Match the length of your contract to your actual need
Longer-dated contracts give exchange rates more time to move, so it’s worth checking whether a shorter series of contracts, rather than one long window forward, better suits your payment schedule.
Breaking a large annual requirement into smaller, more frequent contracts can sometimes reduce how exposed any single contract is to a big market swing.
Keep working capital available
Since a margin call typically needs to be met within a short timeframe, often one to two business days, it helps to know in advance where that additional cash would come from if needed.
Building this into your broader cash flow planning eases a lot of the pressure if a call arrives.
Monitor your open positions
Keeping an eye on how the market is moving relative to your locked-in rate can help you anticipate a margin call before it happens, rather than being caught off guard.
This is where transparency matters most in practice:
A business running on relatively lean cash reserves that can see it’s approaching a threshold has time to move funds into place ahead of a call, rather than being asked out of nowhere to find a large sum at short notice.
Many providers, including Alt21, show this information clearly within the platform, so you can see the current position on your forward contracts at any time.
Tom elaborates:
“The benefit to the client is that they can then prepare for it. Say you’ve got a business that runs on quite low cash, but they’ve got a 0.3% margin call level and they’re approaching that. They can see that on the Alt21 platform and think, right, we’re not far off, let’s move some cash across just in case. That’s a very different experience to an unexpected call with little warning of size or timing. That transparency benefits them just as much as it benefits us.”
Ask questions early
If you’re ever unsure why a margin call has been requested, or how it’s been calculated, your provider should be able to explain it clearly.
A margin call shouldn’t feel like a black box. If it does, that’s worth raising directly with your account contact.
Currency markets will move regardless of how well prepared you are, so no single strategy can rule out a margin call completely.
These steps can, however, help your finance team plan with fewer surprises, and treat margin as a routine part of managing a forward contract, rather than an unexpected cost.
Read our guide: “The Money Behind the Rate: What Your FX Provider Is Really Asking For”
Do all forward contracts have margin calls?
One of the biggest misconceptions about FX hedging is that every forward contract automatically comes with a margin call.
In reality, whether a margin call applies depends on several factors, including your provider’s approach to managing risk, the size and duration of the contract, and the commercial arrangements you have in place.
Some providers operate with standard margin requirements for many customers. Others may offer credit facilities that reduce or remove the need for margin on certain trades, subject to their own assessment and approval processes.
This means two businesses booking similar forward contracts with different providers may have very different experiences.
It’s also worth remembering that many forward contracts settle without any margin call at all. Exchange rates don’t always move enough to trigger one, and some providers have different thresholds before additional security is requested.
When comparing FX providers, it’s worth asking questions such as:
- Under what circumstances could a margin call occur?
- How is the margin amount calculated?
- Are there minimum thresholds before margin is requested?
- What credit facilities are available?
- How much notice would be given if additional funds were required?
Understanding these answers upfront can help you build a clearer picture of how different providers manage risk and avoid surprises later.
Good to know
A margin call isn’t a feature of a forward contract itself. It’s a risk management process that some providers use when certain conditions are met. Knowing how your provider approaches margin is just as important as understanding the forward contract you’re entering into.
Disclaimer: Forward contracts and other FX hedging products may not be suitable for every business. Whether a particular product or credit arrangement is appropriate depends on your circumstances, objectives and exposure. Always make sure you understand the terms of any agreement before entering into a transaction.
How Alt21 approaches margin calls
Margin calls are far less confusing once you can see exactly how your provider calculates them, and that clarity is a big part of what Alt21 is built around.
Alt21 shows the pricing behind every forward contract, including deposit requirements, before you commit to anything, so you can see the full picture before you commit, which reduces the risk of hidden margins or surprises further down the line.
You can model a forward contract yourself, see how the numbers work, and check your deposit position at any point while your contract remains open.
Chris adds:
“The way we handle margin calls here comes down to transparency. A client can log in at any time, see exactly what their position looks like, how close they are to getting called for collateral, and if they do get called, how much it will be. In my experience, that’s not always how other providers approach it – a client can be left waiting to find out whether a call is coming, and how much it might be, until it lands. Whereas with us, everything’s laid out and visible and they can see how close they are to getting called.”
This is different from an approach where a business hears little more than ‘a call might happen, or it might not ‘, often finding out the size and timing only once a call has already landed.
Alt21’s approach is to keep your position visible throughout the life of a contract, so you can see where you stand relative to a call at any time, not just find out once one has already been issued.
Understanding a margin call is one part of building a stronger approach to currency management, and it’s a step many finance teams take as they move from simply making international payments to actively planning for the ones still ahead.
Chris says:
“Say we had a client who wouldn’t hedge across their year end, because their accounts run January to December, and if they’ve got open forward positions at the end of December, they have to account for them as a profit or loss, and they don’t know how to do that. We can produce an indicative valuation on all their open contracts that they can use in their accounts.”
If your business is starting to look at forward contracts, or you’d simply like to understand how margin and deposits work before you commit, you can explore Alt21’s forward contracts or speak to a member of the team.
Whether you’re managing your first hedge or reviewing how your current provider handles margin calls, it helps to have the full picture in front of you.
(Applicants must pass Alt21’s onboarding process and accept our terms and conditions before becoming a client.)
FAQs
Is an FX margin call a fee?
No. A margin call isn’t an additional fee or charge. It’s a request from some providers to deposit additional funds as security while an open forward contract remains outstanding.
Does a margin call change my exchange rate?
No. If your forward contract continues to settlement, the agreed exchange rate doesn’t change because of a margin call.
Does every forward contract result in a margin call?
No. Many forward contracts settle without a margin call. Whether one occurs depends on factors such as market movements, the provider’s margin policy, the size and duration of the contract, and any credit arrangements that may be in place.
Is a margin call a sign that my hedge has failed?
A margin call doesn’t necessarily mean your hedging strategy has been unsuccessful. It simply means the market value of the open contract has moved enough for your provider to request additional security under the terms of your agreement.
What’s the difference between margin and mark-to-market (MTM)?
Mark-to-market (MTM) measures the current value of an open forward contract based on today’s exchange rate. A margin call may occur if that mark-to-market value moves beyond the thresholds set by your provider. In other words, MTM measures the movement; a margin call is one possible response to it.
How much notice will I get before a margin call is due?
This varies between providers, but funds are typically requested within a short window, often one to two business days. It’s worth confirming this timeframe with your provider before agreeing a forward contract, so your finance team can plan accordingly.
What happens to the deposit once my contract settles?
Once a forward contract completes, any deposit held as margin is normally returned to you or offset against your final payment. It isn’t an additional cost; it’s security held for the length of the contract.
Is a margin call the same for options as it is for forward contracts?
The mechanics differ. Forward contracts typically involve deposits linked to the value of the open contract, while FX options usually involve paying a known premium upfront and don’t carry the same margin call structure. If you’re unsure which product suits your business, it’s worth asking your provider to explain the difference before you commit.
Will Alt21 contact me before requesting a margin call?
Alt21 aims to make margin and deposit requirements clear from the outset, so you can see how your forward contract is valued at any point. If you ever have a question about your position, our team is on hand to talk it through.
What should I do if I’ve just received a margin call?
Start by checking the figures against your original contract and current market rates, most providers will show you this breakdown on request. Then confirm the payment window and get in touch with your provider if anything is unclear. Acting early, rather than waiting until the deadline, usually makes the process much more straightforward.
ALT21 Limited is authorised and regulated by the Financial Conduct Authority (FRN: 783837) and is a company registered in England and Wales (number 10723112). The registered address is 45 Eagle Street, London WC1R 4FS, United Kingdom. This article has been produced by ALT21 Limited for information purposes only. It does not constitute financial advice or an offer to sell or the solicitation of an offer to buy any products referenced. Hedging products are not suitable for every business. Before entering into any FX product, you should consider whether it is appropriate for your needs and circumstances. ALT21 Limited assumes no liability for errors, inaccuracies or omissions. Eligibility criteria and terms and conditions apply to all products and services offered by ALT21 Limited. Not all applications will be accepted.
