What Is the Difference between Margin Call and Liquidation?
A margin call is a warning or notification that a trader's margin is approaching the maintenance margin level, requiring them to deposit more collateral to avoid liquidation. Liquidation, conversely, is the automatic, forced closure of the position by the exchange's risk engine because the margin has already fallen below the maintenance level.
A margin call offers a chance to save the position, while liquidation is the consequence of failing to meet the call.
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.
Flash Crash
Phenomenon ⎊ A flash crash is a market phenomenon characterized by an extremely rapid, deep, and short-lived decline in the price of a cryptocurrency or derivative contract.
Deposit More Collateral
Margin ⎊ Deposit More Collateral represents a proactive adjustment to risk parameters within derivative positions, particularly prevalent in cryptocurrency markets where volatility necessitates dynamic capital allocation.
Forced Closure
Trigger ⎊ Forced closure, within cryptocurrency derivatives and options trading, represents the automatic liquidation of a position due to insufficient margin to cover accruing losses, a critical risk management function.
Maintenance Margin Level
Collateral ⎊ The maintenance margin level, within cryptocurrency derivatives and options trading, represents the minimum equity a trader must maintain in their account relative to their margin requirements.
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.