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Liquidation Call

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Table of contents
    1. 0.2. How It Works
    2. 0.4. Importance in Trading

A Liquidation Call occurs when a trader’s margin falls below the required maintenance level, prompting the lender or exchange to demand additional funds or assets to avoid automatic liquidation of positions.

How It Works

In margin trading, when the value of a trader’s position drops significantly, the exchange may issue a liquidation call. If the trader does not add more funds or collateral, their position will be automatically liquidated to cover the loss. This is a risk management feature to protect lenders from large-scale defaults.

Importance in Trading

Liquidation calls help ensure the solvency of exchanges and prevent traders from accumulating excessive debt. Understanding when a liquidation call is likely to occur is crucial for managing risk and protecting capital in volatile markets.