What Happens If a Trader Fails to Meet a Variation Margin Call?
Failure to meet a variation margin call, often called a 'margin call,' typically leads to the forced liquidation or close-out of the trader's derivatives position by the clearing firm or the exchange. This is done to prevent further losses and protect the integrity of the clearing system.
The clearing firm may use the initial margin to cover any remaining losses.
Glossar
Variation Margin
Collateral ⎊ Variation Margin represents a dynamic adjustment to posted collateral requirements in cryptocurrency derivatives markets, reflecting real-time mark-to-market losses on open positions.
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 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.
Derivatives Position
Contract ⎊ A derivatives position represents a contractual obligation to trade an underlying asset, such as a cryptocurrency, at a predetermined price or time in the future.