What is a margin call?
- Author
- CRYPTO PORT Editorial
- Published
- Updated
- Reading time
- 4 min
In short
A margin call is the notice an exchange sends when your margin ratio falls below its threshold, asking you to add funds or reduce the position. Fail to resolve it in time and the position is closed for you. Many venues also set a lower level at which liquidation happens with no notice at all.
Key points
- A demand for more collateral when the ratio breaks
- Unresolved, it ends in a forced close
- Thresholds and deadlines differ by exchange
- In fast markets the notice may arrive too late
Definition
A notification issued when the margin ratio falls below the level an exchange requires, demanding additional collateral or a reduction in position size.
The margin ratio is broadly the collateral balance divided by the collateral the position requires. Unrealised losses shrink the numerator, and once the ratio breaks the exchange's threshold a margin call is issued. You can respond by depositing more or by closing part or all of the position.
The threshold, the timing of the notice and the grace period all differ by venue. Some check daily; others monitor continuously and act at once. Perpetual contracts typically offer no grace at all, closing the position automatically the moment the ratio is breached.
The thing to internalise is that a margin call may never reach you in time. A fast move can take the ratio to the liquidation level before you can read the notice, let alone act on it. Any plan that depends on receiving a warning fails exactly when it matters most.
Watch out for
- · In a fast market the position can be liquidated before you can respond
- · Even after liquidation, losses above the collateral can leave a balance owed
- · Thresholds and grace periods vary by exchange and must be checked in advance