How Can a Trader Avoid a Margin Call?
A trader can avoid a margin call by actively managing their risk and maintaining sufficient equity in their account. This involves using lower leverage ratios, which creates a wider buffer between the entry price and the liquidation price.
Additionally, setting stop-loss orders to automatically close the position before it reaches the maintenance margin level is critical. Finally, adding more collateral to the margin account (realizing profits from other trades) can preemptively increase the margin level.
Glossar
Margin Account
Leverage ⎊ A margin account in cryptocurrency, options, and derivatives trading represents an equity-backed loan from a broker, enabling traders to control a larger position than their available capital would otherwise permit.
Maintenance Margin Level
Collateral ⎊ The maintenance margin level, within cryptocurrency derivatives and options trading, represents the minimum equity a trader must maintain in their account relative to their margin requirements.
Portfolio Margining
Framework ⎊ Portfolio margining, within cryptocurrency derivatives and options trading, represents a sophisticated risk management technique that dynamically adjusts margin requirements based on the overall portfolio’s risk profile rather than individual positions.
Collateral
Asset ⎊ Collateral, within the domain of crypto derivatives and decentralized finance, refers to the digital asset or assets pledged by a market participant to secure a loan or to cover potential losses on a leveraged trading position.