What Is a Margin Call?

An investor’s margin account is made up of assets purchased with borrowed funds. It is typically a combination of the cryptocurrency trader’s personal money and borrowed money. The broker will then demand that the investor deposit additional money or securities to meet the minimum required maintenance amount to continue trading.

A margin call is normally enforced when funds are at risk of running out, particularly due to a losing trade. A trader can add money to the account to avoid having to close the position. If adding funds to the account is not a viable option, then closing the position becomes inevitable. The brokerage can do this without obtaining consent from the trader.  Traders can also sometimes calculate the exact amount to which an asset must fall in order for a margin call to be executed. They can use stop orders to reduce their risk exposure and prevent margin calls from being triggered.

A stop limit is an instruction to buy or sell an asset on a trading venue, including cryptocurrency exchanges. They are designed to prevent huge losses during times of excess swings and wild volatility.