How Does a Margin Call Occur in Cryptocurrency Futures Trading?
A margin call occurs when the equity in a trader's margin account falls below the maintenance margin level. This happens when the futures position incurs losses due to adverse price movements.
The exchange or broker then requires the trader to deposit additional funds to bring the account equity back up to the initial margin level. Failure to meet the margin call can lead to the forced liquidation of the position.
Glossar
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.
Equity Margin Call
Trigger ⎊ An equity margin call within cryptocurrency derivatives, options trading, and financial derivatives arises when the equity in a trading account falls below the required maintenance margin level, necessitating additional funds to cover potential losses and maintain open positions.
Leverage Settings
Parameter ⎊ Leverage settings define the multiplier parameter chosen by a trader to control the notional size of a derivative position relative to the initial margin capital.
Cryptocurrency Futures
Leverage ⎊ Cryptocurrency futures contracts represent agreements to buy or sell a specified quantity of a cryptocurrency at a predetermined price on a future date, functioning as a derivative instrument.
Forced Liquidation
Trigger ⎊ Forced liquidation occurs when a trader's margin account falls below a predetermined maintenance margin level, compelling the broker or protocol to automatically close positions.
Liquidation Engine
Mechanism ⎊ A Liquidation Engine within cryptocurrency derivatives functions as an automated process triggered by margin calls, designed to mitigate counterparty risk for exchanges and lenders.