Margin call

A margin call is a demand or warning from a broker or lending platform that you must add more collateral or reduce your position because your current collateral or equity is no longer sufficient to meet the required margin.
It does not itself close your position; instead, it marks the last point at which you can act to avoid forced liquidation.

Key points / Quick facts

• Triggered when account equity or collateral falls below the maintenance margin or required loan-to-value (LTV).
• In trading, it means you must deposit more funds or reduce positions to restore margin.
• In crypto lending, it means your collateral value has dropped and you must top up collateral or repay part of the loan.
• A margin call is a warning; if you ignore it, liquidation may follow.
• Margin call and liquidation thresholds are usually separate, creating a buffer zone for user action.

What is a margin call?

A margin call happens when the value of the assets in a margin account or collateralized loan falls too close to the platform’s minimum requirement for keeping the position open.
The platform responds by issuing a warning: either increase your collateral or reduce your exposure, or the system may have to act to protect itself if conditions worsen.

In a trading account, this often means that losses on leveraged trades have eaten into your equity, reducing the cushion that keeps the position within allowed margin limits.
In a crypto loan or LTV-based product, it means the market value of your collateral has dropped relative to the outstanding loan, making the position riskier.

A margin call is not a penalty in itself. It is a signal that the account is approaching the point where the platform would have to liquidate positions or collateral to avoid carrying unsecured risk.

How a margin call works in trading

In margin trading, your broker typically defines:

• Initial margin — the amount required to open a leveraged position.
• Maintenance margin — the minimum equity you must maintain to keep the position open.

As the market moves, your account equity changes. If losses reduce equity so that it approaches or falls below the maintenance margin, the broker issues a margin call.

At that point, you usually have two options:

• Deposit more funds or securities to increase equity.
• Close or reduce positions to lower margin requirements.

If you do neither and equity continues to deteriorate, the broker may automatically close positions (liquidation) to prevent further losses beyond your available capital.

How a margin call works in crypto lending

In crypto lending and LTV-based systems, margin calls are tied to collateral ratios rather than trading equity.

Typical logic:

• You deposit crypto as collateral and borrow against it.
• The platform defines an initial LTV and a higher margin call threshold.
• If the value of the collateral falls, your effective LTV rises.
• When LTV crosses the margin call threshold, the platform warns you: add more collateral or repay part of the loan.

If you ignore the margin call and LTV keeps rising, the system may reach the liquidation threshold, at which point collateral can be sold automatically to cover the loan.

In many designs, the margin call threshold is set to give borrowers time to react before liquidation becomes necessary.

Margin call vs liquidation

Margin calls and liquidation are related but distinct:

• Margin call
  A warning or demand to restore margin or collateral before risk becomes unacceptable. It does not close positions by itself.
• Liquidation
  The forced closing or sale of positions or collateral because margin or collateral requirements are no longer met and the user did not act.

In simple terms:

• Margin call = you still have time to fix the situation.
• Liquidation = time is up; the system takes control to protect itself.

For product logic, margin call thresholds are usually above liquidation thresholds, creating a space where user decisions can prevent forced outcomes.

Why margin calls matter

Margin calls matter because they are the early-warning system of leveraged and collateralized finance.

They:

• Alert users that risk has risen beyond comfort levels.
• Give borrowers and traders a chance to restore safety before automated systems intervene.
• Help platforms maintain solvency and avoid sudden, large-scale liquidations.
• Encourage more disciplined use of leverage and collateral.

Without margin calls, users might only discover problems when liquidation happens abruptly. Margin calls introduce a more gradual and transparent escalation.

How to respond to a margin call

When a margin call arrives, users have several typical options:

• Add funds or collateral
  Deposit additional assets to strengthen the position and lower the risk.
• Reduce position size
  Close or partially close trades or repay part of a loan to reduce exposure.
• Rebalance assets
  Switch to less volatile collateral or adjust the asset mix, where platform rules allow it.
• Accept a controlled exit
  Manually close a position rather than waiting for automated liquidation.

The appropriate response depends on risk appetite, market outlook, and the user’s ability to add capital.