In crypto trading, a margin call is a notification from a broker or an exchange that a trader’s account has fallen below the minimum amount of collateral required to maintain their positions. When this happens, the trader is required to either deposit additional funds or close some of their positions to reduce their exposure.
A margin call is triggered when the value of the trader’s positions falls below a certain level, determined by the exchange or broker. This level is known as the “maintenance margin requirement” and is typically set at a percentage of the total value of the trader’s positions.
When a margin call is issued, the trader is usually given a certain amount of time to either deposit additional funds or close some of their positions. If the trader fails to do so within the allotted time, the exchange or broker may automatically liquidate some or all of the trader’s positions to cover the outstanding debt.
Margin calls can be a significant risk for traders using margin trading, as they can result in substantial losses if not managed properly. It’s important for traders to understand the margin requirements and to have a solid risk management strategy in place to prevent margin calls and potential losses. Additionally, traders should carefully consider the risks and benefits of using margin trading and only use it with funds they can afford to lose.