How Does a Margin Call Differ from a Forced Liquidation?
A margin call is a notification from the exchange to the trader that their margin balance is approaching the maintenance margin level, requiring them to deposit additional funds (collateral) to avoid liquidation. A forced liquidation is the actual automatic closure of the position by the exchange when the margin balance has already fallen below the maintenance level.
Glossar
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.
Maintenance Margin
Collateral ⎊ Within cryptocurrency derivatives and options trading, the maintenance margin represents the minimum equity a trader must maintain in their account to cover potential losses.
Automatic Closure
Mechanism ⎊ Automatic Closure, within cryptocurrency derivatives, denotes the pre-defined process by which a position is liquidated to mitigate accumulating losses, particularly crucial given the volatile nature of digital asset markets and leveraged trading.
Forced Liquidation
Liquidation ⎊ Within cryptocurrency derivatives, options trading, and financial derivatives, liquidation represents the involuntary closure of a leveraged position due to margin deficiencies.
Margin Balance
Collateral ⎊ Margin Balance represents the equity held within an account facilitating leveraged positions in cryptocurrency derivatives, options, or broader financial instruments; it functions as a critical risk management parameter, directly influencing available trading capacity and potential liquidation thresholds.