Can a Trader Avoid Liquidation by Adding More Collateral?
Yes, a trader can avoid liquidation by adding more collateral to their margin account before their equity falls below the maintenance margin level. This is known as meeting a margin call.
By adding funds, the trader increases their margin balance, which raises the liquidation price further away from the current market price, thus re-establishing the required buffer. This action is crucial to maintaining the position.
Glossar
Avoid Liquidation
Strategy ⎊ Avoiding liquidation requires proactive risk management strategies focused on maintaining a healthy margin ratio.
Adding More Collateral
Function ⎊ The mechanism dictates the procedural requirement for augmenting existing collateral backing a leveraged position or derivative contract, often triggered by a decline in the margin level below a predefined threshold.