Can a Trader Prevent Liquidation after a Margin Call?
Yes, a trader can prevent liquidation after receiving a margin call by promptly adding more collateral (margin) to their account. This action increases the account equity, raising the margin ratio back above the maintenance margin level.
Alternatively, the trader can partially close the position to reduce the margin requirement. If neither action is taken before the margin falls to the liquidation level, the position will be forcibly closed.
Glossar
Collateral
Requirement ⎊ Collateral in derivatives trading represents the assets pledged by a market participant to secure their obligations, mitigating the counterparty risk associated with open positions.
Margin Call
Trigger ⎊ A margin call in cryptocurrency, options, and derivatives markets represents a broker’s demand for additional funds to bring an account back to the minimum required margin.
Margin Ratio
Threshold ⎊ The specific ratio, expressed as a percentage or fraction, comparing the current margin balance to the required margin level for a given position, which dictates the risk status of the account.
Liquidation
Trigger ⎊ Liquidation in cryptocurrency derivatives represents the forced closure of a trading position due to insufficient margin to cover accruing losses, a critical event impacting market stability.
Unrealized Profit
Valuation ⎊ Unrealized profit, within cryptocurrency, options, and derivatives, represents the hypothetical gain calculated on a position if it were closed at the current market price, differing from actualized gains realized through a sale or exercise.
Prevent Liquidation
Mitigation ⎊ Preventing liquidation in cryptocurrency, options, and derivatives hinges on proactive risk management strategies.