Margin Call

A margin call occurs when the value of your margin trading account falls below the broker's required maintenance margin level. When this happens, the broker demands that you deposit additional funds or close positions to bring your account back to the minimum requirement.

How Margin Calls Work

When you open a leveraged position, you must maintain a minimum amount of equity in your account known as the maintenance margin. If your positions move against you and your equity drops below this threshold, you receive a margin call.

The Margin Call Process:

1. Position moves against you — Your unrealized losses increase 2. Equity drops below maintenance margin — The trigger point 3. Margin call issued — Broker notifies you (or auto-liquidates in crypto) 4. You must act — Deposit more funds, close positions, or face liquidation

Margin Call in Traditional vs Crypto Markets

In traditional finance (stocks, forex), margin calls often come with a grace period — you might have 2-5 business days to deposit additional funds. Your broker calls or emails you with the specific amount needed.

In cryptocurrency margin trading, margin calls are typically automated. Most crypto exchanges skip the "call" entirely and proceed directly to liquidation when your margin falls below the maintenance level. This is because crypto markets operate 24/7 with extreme volatility.

Example of a Margin Call

Let's say you have $10,000 in your margin account and open a $50,000 long position on BTC with 5x leverage:

• Initial margin: $10,000 (20%)
• Maintenance margin: 10% = $5,000
• If BTC drops 10%, your position loses $5,000
• Your equity is now $5,000 — right at the maintenance margin
• Margin call triggered!

If you don't add funds, further price drops will lead to liquidation.

How to Avoid Margin Calls

• Use lower leverage — The less leverage you use, the more room for price movement
• Set stop-loss orders — Automatically close positions before reaching margin call levels
• Monitor positions actively — Keep an eye on your margin ratio
• Maintain excess margin — Keep more collateral than the minimum required
• Diversify positions — Don't concentrate risk in a single trade

Key Takeaways

Margin calls are a critical risk management mechanism. In crypto trading, they happen automatically and often result in immediate liquidation. Understanding and preparing for margin calls is essential for any margin trader.