Suppose you have a position for $100000 and you have been offered a 100:1 leverage by your broker. Here you have a position worth $1000000 but the amount that you have in your account is only $1000.
Now suppose that the trade works in your favor when you get to keep all the profits that are made with that position size. But if the trade does not go as per your analysis then this can cause your capital in the trading account to start dropping. Now suppose that the loss is higher than the $1000 that you had in your trading account. When this happens then you get a margin call and your trade will get closed automatically. This event is a negative one and you will in most cases not have any control over this. A margin call can come at an unexpected time and it can also be very expensive.
How to protect yourself in the futures market
To protect yourself and not receive a margin call you should be disciplined to not take more leverage than what you can handle. When the trader starts to get greedy and only focuses on the profits they do not prepare themselves for the risk that comes with the gains. They realize this only when the market starts to go in the opposite direction.
It is important that you never use your entire leverage amount and make sure that you trade in a position that lets you withstand any adverse movements that can happen in the market. If you keep a lot of room for the price to move then this will lead to a margin call.
Place a stop loss
To save yourself from a margin call, it is important that you use stop losses and proper risk management. Read review on the importance of placing a stop loss. You should be clear on the amount of risk that you can take. The stop loss that you take on trade should never be more than 2-3% of the entire capital amount that you have in your trade account. This also includes the maximum loss that you will make when you trade using leverage. Do not ever try to win the market as there is no sure shot or quick way to get rich trading in the market. It is about being slow and steady to win successfully in the market.
If you try to win in a single trade and trade with huge leverage then in most cases you will end up losing on the trade. This can wash away your entire trade capital. The greater is the opportunity for you the greater is the risk. If you cannot take the risk then you should not use that leverage.