How Does a ‘Margin Call’ Differ from an Automatic Liquidation in Leveraged Trading?
A margin call is a notification from a broker or exchange that the trader's margin balance has fallen below the required maintenance margin level. It is a warning, giving the trader a chance to deposit additional funds to bring the margin back up to the initial margin level.
Automatic liquidation, conversely, is the forced, immediate closure of the position by the exchange when the margin level hits the critical liquidation price, often resulting in the total loss of the initial margin. Liquidation happens when the margin call is not met and the price continues to move unfavorably.
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.
Margin Level
Metric ⎊ Margin level is a critical quantitative metric used to assess the health and risk exposure of a leveraged trading account.
Deposit Additional Funds
Requirement ⎊ Deposit additional funds refers to the action a trader must take to increase the collateral in their margin account when a margin call is issued.
Automatic Liquidation
Trigger ⎊ Automatic liquidation represents a pre-defined event within cryptocurrency derivatives markets, notably perpetual futures, initiating a forced closure of a trading position to mitigate accumulating losses and maintain exchange solvency.