What Is a “Margin Call” and Why Does It Occur?
A Margin Call is a demand from a broker or exchange for a trader to deposit additional funds into their margin account to bring the balance back up to the required Maintenance Margin level. It occurs when losses in a leveraged position cause the equity in the account to fall below this minimum threshold.
Failure to meet a margin call can result in 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.
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 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.
Account Equity
Valuation ⎊ Account equity, within cryptocurrency, options, and derivatives, represents the residual claim on an account’s assets after deducting all liabilities, functioning as a real-time measure of net worth exposed to market fluctuations.
Forced Liquidation
Liquidation ⎊ Within cryptocurrency derivatives, options trading, and financial derivatives, liquidation represents the involuntary closure of a leveraged position due to margin deficiencies.
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.