What Is a “Margin Call” and How Does It Relate to Collateral?
A margin call is a demand from a broker or exchange for an investor to deposit additional funds or collateral to bring their margin account back up to the required maintenance margin level. It is triggered when the value of the collateral backing a leveraged position falls below a certain threshold due to adverse market movements.
Failure to meet a margin call can result in the automatic 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.
Leveraged Position
Amplification ⎊ A leveraged position within cryptocurrency, options, or derivatives fundamentally alters risk-reward dynamics through the utilization of borrowed capital or contractual obligations.
Liquidation
Trigger ⎊ Liquidation in cryptocurrency derivatives represents the forced closure of a trading position due to insufficient margin to cover accruing losses, a critical event impacting market stability.
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.
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.
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.